For more than 20 years, Jay Chandarana has relied on commercial banks to meet the day-to-day working capital needs of his family business, Dhaval Agri, a sesame seed exporter. The arrangement has worked in principle: the company has grown to account for 13 percent of the country's total exports, making it the largest sesame seed exporter in the market. But it remains a mid-sized business, with revenues of just $83 million last year, despite sending seeds to customers in 40 countries.
And when Chandarana was thinking about how to expand his business, he was faced with a lack of access to bank-based funding.
“Banking in India is collateral-based,” Chandarana explains. “The volume of transactions may increase based on the business, but the amount the bank pays increases only based on the value of the collateral.”
So in 2019, Dhaval Agri turned to Palo Alto-based startup Drip Capital as an alternative way to raise working capital. And it worked: Chandarana told TechCrunch that Dhaval Agri's transaction volume has grown by 50% in the five years since it became a client of the startup.
Now, Drip wants to scale up to cater to that opportunity with more entrepreneurs locally and internationally. The company has raised $113 million in funding so far, of which $23 million comes from equity from Japanese institutional investors GMO Payment Gateway and Sumitomo Mitsui Banking Corporation, and $90 million from debt led by the World Bank's International Finance Corporation (IFC) and East West Bank.
To date, the company has raised approximately $640 million in equity and debt funding from investors including Accel, Peak XV Partners and Y Combinator.
The loan will be used to expand working capital loans to SMEs, and the capital will be used to expand the company and its products. The company is using AI to automate and digitize its operations, and also for risk analysis.
Drip currently serves between 9,000 and 10,000 businesses, about 60% of which are in India, the rest in the U.S., and a few in Mexico. The company is already profitable and says it is targeting 40% year-over-year growth over the next two years.
The challenges faced by Dhaval Agri are similar to the financial crunch faced by small and medium-sized enterprises around the world. Small and medium-sized enterprises generally operate with a very short capital turnover period. They invoice customers to generate revenue, but payments can take time, and in the meantime, these businesses need to pay their suppliers to stay in business.
Third-party working capital has become a common solution. It is essentially a short-term loan on credit that companies pay back when they get paid (30, 60, 90 days are common increments). Meanwhile, these companies need to pay suppliers promptly to maintain sufficient inventory. In India, despite the high percentage of SMEs (it is said to be the largest SME market in the world, approaching 100 million), traditional financial institutions are not inclined to provide working capital arrangements to drive growth, only maintenance.
Drip Capital caters to all this for thousands of small and medium sized importers and exporters like Dhaval Agri, not just in India but also in the US. The company's target clients generate revenues of $500,000-100 million annually. It initially started with a focus on exports from India, but gradually expanded to include imports into India and then in the US.
Like other working capital startups, Drip will lend up to $2.5 million and essentially buy up customers' accounts receivable invoices up to that amount (plus a service fee). This allows companies to have cash to pay their suppliers and run their businesses even if their customers take more than two months to pay their invoices. Drip also offers accounts payable loans of up to $5 million to give importers extended terms for paying their suppliers.
Drip Capital recently began serving companies in the US and plans to expand its model to India. The startup has already applied for a non-banking financial company (NBFC) license to cater to the domestic needs of Indian companies.
“Our view is that to provide a fundamentally holistic service offering, it’s important to meet the domestic and cross-border needs of the companies we work with,” Pushkar Mukewar, co-founder and CEO of Drip Capital, said in an interview.
One of the company's new products is foreign exchange: Mukewar told TechCrunch that many of Drip Capital's clients are either receiving international remittances or sending foreign dollars, and the company is targeting those clients by offering them cheaper foreign exchange access through its existing partnership with Barclays.
Similarly, Drip Capital is piloting a procurement platform to connect buyers with new suppliers using its buyer-seller network.
This latest investment comes nearly three years after Drip Capital raised $40 million in a Series C round in October 2021.
“Having achieved profitability, we are raising only the amount of capital we need for our next phase of growth while being mindful of dilution,” he said. He declined to disclose the valuation but acknowledged that it was not a down round.
“The last two years have been all about getting the economics of the business right to get to this point where we're profitable,” he said.