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Why we invested in Meesho

Update [Apr 2021]: Meesho is now a unicorn valued at $2BN. This post was originally published here.

Update [Nov 2018]: Meesho has since come a long way from when I first tried to describe the business below. A more comprehensive understanding of the business is told through this video:

Further, this article helps further explain the business model:

https://medium.com/@youngarjeezy/how-blackbox-delivery-networks-are-organised-in-india-77d8c0e599c2


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 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 manufacturers.

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 or send them out to their contacts on Whatsapp. Any time there is new information on pricing, new designs, inventory, they put it up on Facebook and blast it on Whatsapp. People managing these pages are known as sellers.

When new 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 there’s a whole category of people capitalising on this behaviour

Fashion goods are not just being listed on Facebook/Whatsapp 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. Most of this marketing is actually done through Whatsapp groups. They create new groups, populate them with friends & acquaintances and announce that they’re starting a new business.

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

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.

Resellers add users to a Whatsapp group and this becomes their platform to share every product update. Resellers are smart and sophisticated marketers. They intuitively understand how to market through Facebook and Whatsapp.

This transaction chain was clearly quite convoluted. What stood out to me initially was that there was almost no churn in the audience exiting Whatsapp groups. End users treat each Whatsapp group like a social media or a product feed — being able to interact with the reseller allowed them to build trust, a touch-and-feel familiarity with the products, and a richer interaction around buying.

The obvious problems with the way things were done included:

  • 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.
  • 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.

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 always on the look out for talent! Email vidit [at] meesho [dot] com