BukuWarung, an AC Ventures portfolio company that focuses on helping digitize MSME businesses, raised US$60 million in a Series A round led by VC Valar Ventures and Goodwater Capital. AC Ventures also participated in this round.
BukuWarung’s new funding comes four months after announcing it had raised funds from Rocketship.vc and an Indonesian retail conglomerate. This brings BukuWarung’s total capital raised in the past 18 months to US$80 million the most raised by any micro-enterprise-focused startup in Indonesia.
The strengths of BukuWarung compared to other competitors can be seen from the founder’s intense focus on product-led growth and deep understanding of their merchant’s pain points.
According to ACV’s Founder & Managing Partner, Adrian Li, BukuWarung’s core mission of driving financial inclusion can only be made possible through deeply integrated software that can build up a holistic picture of MSMEs’ financial health.
“One of the key pain points for MSMEs is access to credit. There is an estimated financing gap of US$50-70BN to MSMEs in Indonesia, resulting in over US$130BN in lost value creation in this sector alone. There are two major roadblocks for MSMEs to get financing,” Adrian said.
First, MSMEs are generally not considered creditworthy by the banks as there are typically no assets that can be used for collateral. Second, banks’ branches are very limited in tier-2 and tier-3 cities, making it harder for MSMEs to apply for financing.
“Indonesia has seen numerous fintech players trying to address this issue, but even with fintech lenders, there is scarce information on which to understand the financial health of MSMEs businesses. As a result of this, fintech lending companies only disbursed a total of US$5.0B in 2020, still far from addressing the financing gap,” He added.
Historically, many of these MSMEs, especially those at micro or “warung” scale, were run simply on a “product in and out” basis with no inventory or transaction tracking. Bukuwarung saw an opportunity to start providing a fundamental ledger app that made it easy for owners to enter sales information and thus provide data around the scale and frequency of transactions at these businesses.
The business has since expanded on its core application to include payments and features that help merchants instantly set up an online store, all of which contribute to creating a greater holistic view of the financial health of the businesses. With all these features, BukuWarung allows MSMEs to make a financial profile that can be used for the banks and fintech companies to assess credit risk and thereby bridging the gap for MSMEs to get financial service access.
As a result, BukuWarung has more than 6.5 million merchants spread across 750 cities in Indonesia. BukuWarung has processed approximately $1.4 billion of annual payments and is ready to process more than $10 billion of annual payments by 2022.
In the future, BukuWarung plans to use this new funding to develop accounting products, digital payments and commerce, payment infrastructure (QR), and more. They also want to add financial services for MSMEs, such as savings, insurance, and loans to their platform.
“We have run successful lending experiments with partners in fintech and banks and are on track to monetize our merchants supported by deep payments, accounting, and other data we collect,” Co-Founder and CEO of BukuWarung, Abhinay Peddisett said.
The company also plans to create more jobs. From 150 BukuWarung employees across Indonesia, Singapore, and India today, the company targets to add 300 employees.
“We don’t see this space as a winner take all. Our focus is on building the best products for MSMEs, as proven by our execution on our payments and accounting, shown by the huge growth in TPV payments as we are ten times bigger than the closest player in this space,” Abhinay Peddisetty said in a statement.