Why we invested in Meesho

This week SAIF Partners announced a $3.4m Series A into Meesho and so I feel it’s the perfect time to blow the dust off this old draft to share some of our original views on investing in Meesho back in early 2016.

The product caters to a set of behaviours unique to the Indian market (my detailed observations here) and playing around with it gives a good sense of how the team thought through these challenges.

Vidit Aatrey and Sanjeev Barnwal were introduced to us in June 2015 by two separate portfolio company founders, both with strong recommendations. At the time, they were working on Fashnear — a hyperlocal, on-demand fashion marketplace with all the right buzzwords!

They had spent the previous couple of months listing inventory of fashion goods from local stores into an app, taking orders in the local vicinity, and — armed with different sizing options — would ride over to customers on scooters to close the transactions. Order-to-delivery was rapid and customers were very happy with the service. However, as discount season came to a close, Fashnear’s narrow margins were squeezed and it was pretty clear this wasn’t a sustainable business model.

But the hands-on experience gave the founders incredible insights into the real problems of long-tail fashion commerce in India.

How the market works

Almost 90% of fashion commerce in India is unbranded goods.

Let that sink in.

As they’re unbranded goods, loyalty cannot be built and so they struggle to sell through online marketplaces (good luck to sellers not on the front page!) or their own websites.

So here’s how the supply chain for these goods works:

The suppliers (important) for these goods are either wholesalers in places like Surat or local indie manufacturers making small batches of designs.

Traditionally these items were sold offline through local stores but — when a little thing called the internet came along — local store-owners started to photograph models wearing these products (think salwar-kameez, saris, etc.) and put these photos up on a Facebook Page. They update these Facebook pages regularly with information on pricing, new designs, inventory, etc. People managing these pages are known as sellers.

When users (buyers) surf Facebook and come across a design that they like, they typically use Whatsapp to message the sellers on the phone number listed on the Facebook Page.

On Whatsapp, the conversation involves your standard bargaining on the price between the two parties, bank account information being shared, postal information being shared and the transaction completing.

But wait… we missed re-sellers

Fashion goods are not just being listed on Facebook by sellers. There’s tens of thousands of enterprising individuals, typically housewives who don’t have a full time job but can spare few hours, that scour existing Facebook Pages and collate their favorite products onto their own Facebook Page.

E.g. Take a look at the Facebook Page for Anu’s Boutique.

BTW Anu was one of the first people I spoke to when we met Meesho. I didn’t realise how well she has done since — with 5,856 likes, I’m sure she’s killing it!

Incidentally, the social impact that Meesho has in local communities is fairly transformational. By enabling individuals that are otherwise bound in social traditions to earn their own incomes, respect for them in the community rises and they’re more financially independent.

The markups for these products range anywhere between 10% to a 1000% percent depending on how well they curate their brand (who’s going to find the MRP here anyway, right?!).

Once a buyer shows interest in any product, resellers also add them to a Whatsapp group which becomes their platform to share every product update. Resellers are smart and sophisticated marketers. They may not academically study what how Facebook filtering affects presence on the home page but they feel it intuitively, and know it first hand.

If you are scratching your head right now, don’t worry — I went through the very same sentiment while trying to understand how broken this transaction chain was. What stood out to me initially was that there was almost no churn in the audience exiting Whatsapp groups. I tend to leave (and promptly get re-added) to my family group if I have as little as twenty messages on it!

The obvious problems with the way things were done included:

  • Managing real-time inventory: Often resellers would “sell” an item to a buyer but when they turned back up the chain to the original seller, they found no inventory.
  • Easy distribution of products via FB & Whatsapp: It sounds trivial but packaging a product (multiple images, description, price, sizing option inventory and payment link) into 1 object is not easy to do on Whatsapp. Buyers would often be confused.
  • Transacting: Giving bank account details over Whatsapp meant it would take a week for the money to come into the buyer’s account. Once in the account, it’s difficult to identify which buyer it came from.
  • Supply: The best resellers would run out of things to sell. They needed access to a curated list of trusted wholesalers with inventory and reliability.

Enter Meesho

The Fashnear experience helped Vidit and Sanjeev really understand the dirty details of the above problems. They built Meesho as a suite of tools that helps re-sellers sell fashion products through Whatsapp and Facebook more efficiently.

Today, this includes customer management, inventory management and order tracking across the supply/distribution chain as well as a curated supply marketplace, which helps their resellers source more products to sell with greater ease. The product is free for sellers and Meesho monetizes through commission.

Going forward

It’s early days for Meesho. The sense of energy is palpable every time I enter the office and it becomes more and more clear that this problem runs a lot deeper than we thought.

I believe the model that Meesho has built can be applied to several other opportunities. Un-sexy areas like vendor payments and supply chains are waiting for software to similarly transform them.

In an ecosystem where there is a tendency to look for global analogs when building startups, I hope founders that can spend their time in these areas discover other underserved opportunities.

P.S. Meesho is hiring! Email vidit [at] meesho [dot] com