Dinesh Agarwal, CEO, IndiaMart

Dinesh Agarwal, CEO, IndiaMart

Earlier in January, online B2B marketplace IndiaMart raised an undisclosed amount of money from Intel Capital: a total of $23 Million was invested in IndiaMart, One97 Communications and Global Talent Track. Founded in 1996, Indiamart claims to have over 15,000 clients, with offices in 26 cities, covering 100 towns in India. In 2007-08, they reached $10 million in revenues, and the company claims to be cashflow positive.

In Part 1 of a conversation with MediaNama, Dinesh Agarwal, CEO of IndiaMart told us what made him think about raising money, why Intel Capital, and whether Intel Capital went in for a down-round. Excerpts from the discussion:

Q. How has the downturn impacted you?

Ans. I think the latter part of the upturn affected us more than the downturn. We were highly cashflow positive business, and towards the end of 2006-2007, there was market frenzy. Our costs were going up unnecessarily and the whole business model started to look non-feasible in the medium or the longer term. If costs were to grow at 30-40-50% growth, I didn’t see the businesses flourishing in the long run. That is when I decided to raise the money. We would never thought of raising money otherwise.

Q. Your employee cost must have gone up significantly…

Ans. Yes, that and real estate cost went up significantly during the upturn. That was the initial feeler for me that if tomorrow some serious competition came in and spent a lot of money, we would be in a crunch situation. With the downturn, the market expectation in terms of costing will come down; it will impact our customers as well, which would indirectly impact our topline. But these are the times when Internet advertising grows.

Q. How has the company been doing and how do you think the market will evolve?

Ans. IndiaMart has been a profitable company since day one. We have been growing consistently over the years, whether it was a downturn or not, within a range of anywhere between 30-40% to 65-70%. If you just compute the basic CAGR it is approximately 40-60% CAGR per year over many years. But those were times when our total revenue base itself was at a smaller size. I don’t think that many businesses were adept at using the Internet at a very large scale 4-5 years ago.

In the last 10 years, two things have happened – the Internet penetration and connectivity have become somewhat reliable and secondly, businesses have started responding to the opportunity on the Internet. The second generation has now started participating in the businesses, and an inflexion point is about to come in the Indian business Internet usage, the same way it did in China 8-10 years ago. Now I feel that at a large revenue base like ours, to maintain a growth of 40-60% over the next few years we might have to spend a larger amount of money on different activities like advertising and marketing, and a strong management team. We have not been advertising.

Q. You have had feet on the ground…lots of people in sales…

Ans. That is true. But if you want to penetrate into slightly medium and larger SMEs (Small and Medium Enterprises), a brand pull has to be created. Because we want to consolidate our position as a strong leader, it is prudent to spend a good amount of money on the market initiatives – not just do sales. We have been very strong in sales  with a thousand people strong team. We also think marketing will help us attract better talent.

Q. Didn’t you sign up for BCCLs Private Treaties for the marketing?

Ans. Yes we did.

Q. So why not continue with BCCL rather than going with Intel Capital?

Ans. Intel is probably going to complement it with money. BCCL has media properties, but for a larger market pull, you need to invest across various media…and you cannot do private treaty deals with 7 different media houses.

Q. Did you have any issues with the valuations? From what we’re told, Times Private Treaties valued you rather high; So did Intel capital go for a down-round?

Ans. No it was not a down round; it was a slightly better round than that…but in terms of multiples we might have gone down because when we raised BCCL round it was at the height of 2006 and it was more of a barter deal, without cash infusions. The multiples are definitely lower this time, but we have grown to almost double our size since then, so the overall valuation is higher this time.

Q. Where is the synergy with Intel Capital? You’re a B2B marketplace…

Ans. For me, they are more of a venture capital fund. I met different venture capital companies over the last two years. Intel matched better with us, they had a longer horizon, and are less impatient than some of the pure VC firms. Some of them think that you have to burn faster to run faster. Somehow my companys DNA does not match with that, we have been a slow, steadily growing company. We are not at that stage where we are a small company, and we not do need a day to day guidance. I mean, we have been able to grow sustainably to a thousand people team.

Q. So where is the exit for Intel Capital?
Ans. I would say that IPO would be an exit for them, or an M&A possibility, but that is not going to be any time soon.


Part 2: No Single Category Contributes More Than 10% To Our Revenues – IndiaMart CEO Dinesh Agarwal
Part 3 : On Competition, Revenue Streams, Thoughts On Other B2B Business Models