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Last updated: 27 Oct, 2017  

asish-matrix-THMB.jpg Startup funding in India is limited to only a few: CEO, OfBusiness

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Saurabh Gupta | 27 Oct, 2017
Being a startup, the biggest challenge continues to be access to funding. Start-up funding is limited to only a few 1) "sunrise" sectors, 2) "Made as in US/ China" models and 3) the perception that the valuations are "too high", CEO & Co-founder, OfBusiness, Asish Mohapatra told SME Times.

OfBusiness is a platform that provides an alternate to the local dealer distributor by providing dual benefits on credit terms (lower cost and longer tenures) and raw material fulfilment (aggregation benefits and quality/ on-time delivery). "We continue to build technology solutions to aid SME's health and growth in core sectors of the economy as manufacturing (auto, power, capital goods, plastics) and infrastructure. As the network grows, the benefits to each member on the platform multiplies," he added.

Excerpts of the interview...

What is OfBusiness?
Asish Mohapatra: OfBusiness is a first-of-its-kind technology-driven SME financing platform with a product fulfillment engine. OfBusiness serves as a single-window for SMEs to get secured and unsecured credit lines, which the SMEs can use for cost-effective procurement of raw material on the platform. The platform in turn aggregates these raw materials (metals, polymers, paper and ancillaries), and passes a bulk of the aggregation benefits to the SME. By providing “purchase financing”, OfBusiness guarantees end use of the credit lines, which ensures a best in class business yield and quality of its book.

OfBusiness was incorporated in August 2015 and 8 people who share the co-founder position including myself, Ruchi Kalra (IIT, ISB, McKinsey Partner), Bhuvan Gupta (BITS Pilani, FMS, Airtel-BSB, Snapdeal), Chandranshu (IIT KGP, Dev Factory, Trilogy), Nitin Jain (IIT Delhi, RBS London), Vasant Sridhar (IIT Madras, ITC), Biswajit (CA, Duet Hotels, DLF Hilton), Dhaval Radia (CA, Religare, Kotak, GE). The team came together in year-end 2015 and started with a Seed/ Series A funding of USD5M from Matrix and few angels. Series B of around USD 11mn with Zodius and Matrix happened in Nov 2016.

All the founders being on the right side of 30s, with significant prior experience, united to build something meaningful in the B2B space. As each of us had some experience to the SME world, we understood the over-dependence of the SME on the local dealer for both material and credit. Our focus since start has been on traditional sectors as manufacturing and infrastructure which are behemoth sectors core to the economy and where-in many members of the founding team had hands-on experience.

Your company was incorporated in August 2015 and was started business in Jan 2016. Being a startup, what do you think is the biggest challenge in India?
Asish Mohapatra: While it is fast improving, the biggest challenge continues to be access to funding. Start-up funding is limited to only a few 1) "sunrise" sectors, 2) "Made as in US/ China" models, 3) mostly not enough for the entrepreneur to concentrate on business and 4) the perception that the valuations are "too high" (which is true only for a limited few). This problem is more amplified for the venture in its early stages as the need is even more acute then.

How our government is doing in supporting startups? your views.
Asish Mohapatra: Government, in recent times, has come up with many start-up schemes and funds initiatives for start-ups. Start-ups need people with an entrepreneurial mindset (which Indians qualify for), demand (which India qualify for) and funding (which, though changing, is a long way to go). Soft loans, partially government owned venture funds and good corporate governance norms for protecting the equity investors' rights have come intermittently and we need to soon see more of them if government wants to be a catalyst to the progress of start-up India. But whether because of it or despite it (viz., the government support), is that the entrepreneurial Indian will keep taking rapid strides to mine the great Indian demand.

You said OfBusiness is a financial services company that is into lending for SMEs. Why SMEs? What attracts you in this sector?
Asish Mohapatra: SMEs are the core of the Indian economy, accounting for 80M of employment, 45% of GDP. The key problems that SMEs face today are financial access for growth (working capital for new orders) and buying power of raw materials. Thus, raw materials are financed at an exorbitant cost by the suppliers to SMEs and several middlemen thrive in the trade. This limits the SMEs profitability, growth and hence their ability to spend for market access, quality of products and on employment of its work force.

OfBusiness focuses on SMEs in core sectors which is a capital-intensive domain, and often on the receiving end of a working capital crunch due to several reasons. They need capital influxes to trigger growth initiatives, utilize capacity to full, and manage corporate receivable cycles. Their limited buying power also means that there are fewer creditors willing to extend working capital for SME businesses, and if they do, it comes at a prohibitive cost. Further, GST has brought a level operating field for SMEs to grow beyond the earlier limiting geographic boundaries for which they need growth capital.

What is BidAssist? How it works?
Asish Mohapatra: BidAssist, a free of cost, revolutionary platform that not only aggregates new opportunities to enable discovery but also makes recommendations for the SMEs based on their profile. BidAssist currently aggregates over 3,500 government tenders daily from across the country and aims to add equal number of private opportunities in the next 6 months. The platform’s unique approach makes the exhaustive task of searching and bidding for tenders relatively easy, expectedly saving up to 50 percent of the overall time spent earlier in this task. We aim to build a large network of SMEs benefiting from BidAssist.

BidAssist is free of cost. So what is your revenue generation model? What strategies are you following to generate business?
Asish Mohapatra: BidAssist is a free of cost service for all SMEs in the OfBusiness network. OfBusiness is a lending and a procurement platform. Therefore, OfBusiness runs on a dual margin system where we earn revenue through Interest (SME Financing) & Volume discounts on procurement of raw materials. We have achieved total disbursements of INR 350-400 Cr since inception, having a run rate of INR 40 Cr per month  

OfBusiness does lead acquisition online by capturing the SMEs as they bid and win tenders
(aided by OfBusiness), which makes the marketing effort efficient in both cost and quality. Underwriting of loans by OfBusiness is done by not only evaluating the financial data of the
SME, which at times is woefully inadequate, but also several other alternate data sources of SME operations, which are contributed by the SME community of buyers and sellers. While, fulfilment of raw materials is done by OfBusiness using a unique bidding engine that helps both buyers and suppliers get discovery and commercial benefits.

What is your USP?
Asish Mohapatra: Designed for the Indian SMEs, OfBusiness is a first-of- its-kind technology-driven SME financing platform with a product fulfilment engine. OfBusiness brings SMEs further into the financial mainstream by providing “purchase financing” of raw materials, which is 60-70% of the SME’s total cost. OfBusiness is beneficial to SMEs in two ways –
a. it brings in institutional credit (both secured and unsecured) to SMEs, which hitherto gets financed by local distributors and financiers at a much higher cost at 2%+ per month and,
b.  it aggregates several raw materials, and passes most of the aggregation benefits (like volume discounts from manufacturers to the SME. Combining financing and fulfilment, two very different operating models, is done by OfBusiness seamlessly through technology.
USP:
  • OfBusiness has built flexible financing products aligned to SMEs’ cash flow cycles for traditional sectors as manufacturing and infrastructure enabling access to institutional credit (both secured and unsecured) as an alternate to financing by local distributors and financiers, which is at a much higher cost to the SME.
  • Using the bidding engine, OfBusiness aggregates several raw materials and passes most of the aggregation benefits (like volume discounts from manufacturers) to the SME. By providing “purchase financing”, OfBusiness ensures rotation and on-demand use of the credit line ensuring higher quality of its book.
  • Underwriting of loans by OfBusiness is done by not only evaluating the financial data of the SME, which at times is woefully inadequate, but also several other alternate data sources of SME operations, which are contributed by the SME community of buyers and sellers.
  • OfBusiness also helps SMEs find new business opportunities through Tender information packets and in parallel collecting operational information for underwriting.
Why SMEs need to follow platform like yours?
Asish Mohapatra: OfBusiness is a platform that provides an alternate to the local dealer distributor by providing dual benefits on credit terms (lower cost and longer tenures) and raw material fulfilment (aggregation benefits and quality/ on-time delivery). We continue to build technology solutions to aid SME’s health and growth in core sectors of the economy as manufacturing (auto, power, capital goods, plastics) and infrastructure. As the network grows, the benefits to each member on the platform multiplies.

What are your future plans?
Asish Mohapatra: Going forward, we will expand from current 22 clusters to 50 in the next year tripling our book size. We would also be penetrating deeper in newer sub-segments as chemicals and packaging along with raising both debt and equity funding.
 
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