For over two decades, Jay Chandarana relied on commercial banks to meet the day-to-day, working capital needs of his family business, the sesame seed exporter Dhaval Agri. It was an arrangement that basically worked: the company grew to have a 13% share of the country’s total exports, making it the largest sesame seed exporter in the market. Yet despite sending seeds to customers in 40 countries, it’s still firmly a medium-sized enterprise, with last year’s revenues clearing just $83 million.
And it was facing a problem: when Chandarana thought about how he might expand the operation, his bank-based financial arrangement came up short.
“Banking in India is collateral-based,” Chandarana explained. “Your volumes may grow according to the business you’re doing, but the bank payments will only increase according to the value of your collateral.”
So in 2019, Dhaval Agri decided to try arranging for working capital with Palo Alto-based startup Drip Capital as an alternative — and it paid off. Chandarana told TechCrunch that Dhaval Agri’s volume has increased 50% in the five years that he’s been a customer of the startup.
Now Drip is hoping to scale itself to meet that opportunity with more entrepreneurs in the country and beyond. It has raised $113 million in funding: $23 million in equity from Japanese institutional investors GMO Payment Gateway and Sumitomo Mitsui Banking Corporation; and $90 million in debt financing led by the World Bank’s International Finance Corporation (IFC) and East West Bank.
The company has raised about $640 million in equity and debt funding so far, with Accel, Peak XV Partners and Y Combinator among its other investors.
The debt will be used to expand the number of working-capital loans it provides to SMBs, while the equity will be used for company and product expansion. It uses AI to automate and digitize processes and plans to also use it for risk analysis.
Drip currently serves between 9,000 and 10,000 businesses, with around 60% coming from India and the rest from the U.S. and a small amount in Mexico. It is already profitable, and says it is aiming for 40% year-on-year growth in the next two years.
The challenge that Dhaval Agri faced is not dissimilar to the capital hurdles that small and medium businesses face globally. SMBs work typically on very short capital turnarounds: they issue invoices to customers to make revenue, but these can take time to get paid and in the meantime these businesses need to pay suppliers themselves to continue operating.
Working capital provided by third parties becomes a common solution. These are essentially short-term loans issued on credit that businesses repay when they themselves get paid (30, 60 and 90 days are common increments), while these businesses need to pay suppliers quickly to maintain sufficient inventory. In India, despite the large proportion of SMBs — it’s been described as the largest SMB market in the world, approaching 100 million enterprises — traditional financial institutions have not leaned into working capital arrangements designed to encourage growth, just maintenance.
Drip Capital addresses all this for thousands of small and medium importers and exporters like Dhaval Agri in India, as well as in the U.S. Its target customer generates annual revenue between $500,000 and $100 million. While it initially started with a focus on businesses doing exports out of India, it gradually expanded to include businesses focused on imports into India before expanding again to serve businesses in the U.S.
As with other working-capital startups, Drip advances up to $2.5 million and will essentially buy up their customers’ accounts receivable invoices to the same value (with a servicing commission on top). This allows businesses to have cash to pay their own suppliers and run their businesses, even when their customers take over two months to pay their invoices. Drip also provides account payable financing of up to $5 million aimed at help importers to extend the time they have to pay their suppliers.
Drip Capital also recently started serving businesses in domestic trade in the U.S. and plans to expand that model in India. The startup has already applied for a non-banking financial company (NBFC) license to cover the domestic needs of Indian businesses.
“The thought process is that for us to basically be able to holistic offering, it is important that we cover the domestic and cross-border needs of the companies we work with,” said Pushkar Mukewar, co-founder and CEO of Drip Capital, in an interview.
One of its new products is foreign exchange. Mukewar told TechCrunch that many of Drip Capital’s clients either receive a foreign remittance or send foreign dollars out. The startup targets those clients by offering them cheaper foreign exchange access through its existing partnership with Barclays.
Similarly, Drip Capital is piloting a sourcing platform to help connect buyers with new suppliers using its buyer-seller network.
This latest investment comes nearly three years after Drip Capital raised $40 million in its Series C round in October 2021.
“Given that we have achieved profitability, we raised only the amount of equity required for our next phase of growth while watching dilution,” he said. He declined to disclose the valuation but confirmed it was not a down round.
“The last two years have been really around making the economics of the business right to get to this point where we are profitable,” he said.