Original Post by 7.5 Degrees
Next you will see:
- Indian entrepreneur who spotted opportunity in Indonesia
- Enabling 900,000 MSMEs in Indonesia
- Get a lot of VC big coffee to invest first
In Indonesia, 60 million MSMEs contribute 60% of the country’s GDP but these small and medium-sized enterprises that create great economic value are still operating manually and relying on manual accounting. Abhinay Peddisetty and Chinmay Chauhan, two longtime Indians working in Southeast Asia, are determined to change that. In 2019, BukuWarung, an accounting application focused on electronic bookkeeping was launched to help microenterprises manage their cash flow and credit transaction records.
Although BukuWarung was founded only a year ago, it has gained East Ventures, Golden Gate Ventures, Tanglin Venture Partners, AC Ventures, Quona Capital and other prominent Southeast Asian VC investment. Compared to the mature accounting software application market in China, what kind of business model can BukuWarung offer?
1. Indian entrepreneur who spotted opportunity in Indonesia
Abhinay Peddisetty, co-founder of BukuWarung, said: “SMEs have long relied on pens, paper and calculators to record financial data such as revenue, expenditure and outstanding accounts, But this approach is so backward that banks and financial institutions will not agree to provide financial services to them.” He and his co-founder, Chinmay Chauhan, both come from small business families in India and have a deep sense of the challenges small businesses face in managing their cash flow and keeping track of their credit records. After working in Southeast Asia for 7 years, Chinmay, who worked at travel unicorn Grab, e-commerce company Kudo in Indonesia, and Carousell in Southeast Asia, found out that there is also a huge gap in digitalization for Indonesian MSMEs.
“Every working experience has been meaningful, which has brought me into contact with various micro-entrepreneurs such as the driver of Grab, the agent of Kudo, the seller of Carousell etc. It also helped me understand what SMEs really need. In addition, I have met many excellent colleagues in every work experience, some of them later became Buku Warung angel investors.” Chinmay observed that millions of SMEs in Indonesia use Whatsapp and Facebook, but rarely use enterprise related app, which affected their growth in online businesses. As a result, this also creates a bigger opportunity to do enterprise services.
At the same time, they are seeing players in India already working on financial enterprise services such as the billing application Khatabook and the credit management application OkCredit. “Now that we have similar problems in Indonesia, we decided to solve them.”, according to Chinmay. It took Abhinay Peddisetty and Chinmay Chauhan more than three months to visit several different regions in Indonesia before the official launch of BukuWarung, They have also spoken to more than 400 merchants one-on-one about the challenges they face in bookkeeping, credit history and computing.
2 .Enable 900,000 MSMEs in Indonesia
When it comes to financial type of enterprise application, China primarily focuses on financial SaaS products, and the market development has reached a relatively mature stage. Financial SaaS has different functions depending on the size of the customer. According to the introduction of linear capital, the financial management SaaS product functions of such small and micro enterprises in China are mainly divided into three categories: agent accounting, travel reimbursement, cost control. Examples are Zhang Wang, Yun Zhang Fang, Yi Kuai Bao, Fei Kong Bao etc. For larger enterprises, the financial SaaS product service chain is also longer, to provide one-stop financial cloud services for enterprises.
However Indonesia’s MSMEs are lagging far behind China, and the financial services they need are actually more basic. A more primitive approach is required to analyze the market’s pain points: how do we shift from a manual accounting model that relies on pens, paper and calculators to an online digital model. As a result, Abhinay Peddisetty and Chinmay Chauhan decided to start devising a solution that offers electronic bookkeeping.
BukuWarung is a basic accounting application that helps microenterprises manage their cash flow and credit transactions through electronic bookkeeping, recording data on credit, spending, sales, etc. At the same time, BukuWarung is able to generate financial reports based on these data records to help companies understand the cash flow changes. Recording credit transactions is a very important part of merchant management funds. Credit here usually refers to the credit loans given by small businesses to customers or suppliers, which can also be regarded as a form of credit. If these accounts cannot be recovered in time, it will affect the cash flow of businesses.
“Because they are familiar with the people around them, small businesses often allow customers credit, up to 1 million rupiah (about 471 yuan). But at the end of the month when it is time to collect the money, businesses will go to their customers’ homes personally to ‘chase the debt’. Some business owners might feel embarrassed.” Chinmay points out the difficulties merchants face in collecting money. BukuWarung calculates monthly receivables based on credit records and sends automated payment reminders via text message or WhatsApp to get them to pay back on time. This not only avoids the embarrassment of face-to-face collection, but also allows businesses to increase the speed of collection three times. In order to better record credit transactions, Buku Warung also acquired Lunasbos, an Indonesian credit recording app.
In the process of talking to merchants, Chinmay learned that most people still use pay-per-view traffic and low-end smartphones, therefore he thinks BukuWarung should be designed to be as lightweight as possible and work well with poor network reception or even without network. BukuWarung is half the size of the other contenders at 6MB. “BukuWarung is simple to use, has low memory, and is fast, especially popular with small and micro businesses. BukuWarung has a higher usage rate than any enterprise service App.” Chinmay confidently remarked about BukuWarung.
So far, BukuWarung has served 900,000 MSMEs in 750 cities and towns in Indonesia, Covering street stalls, grocery stores, mobile recharge points, wholesalers, traders, online sellers, more than 50 different categories of businesses.
3. Get many VC big guy scrambling to invest
In April this year, BukuWarung carried out seed round financing, led by Indonesia’s early venture capital East Ventures, Southeast Asian venture capital AC Ventures, Golden Gate Ventures, Tanglin Venture Partners and so on. Michael Sampoerna, founder of Snapdeal, an Indian ecommerce, was also involved in the investment, after investing in Khatabook, an Indian bookkeeping software. In addition, angel investors from Grab, Gojek, Flipkart, Xendit, PayPal, Rapyd, Alterra and ZEN Rooms have also invested in BukuWarung. Three months later, BukuWarung followed the pre Series-A round of financing, led by Quona Capital, which focuses on emerging market financial technology, and many existing investors continue to do so.
After a year or so in business, BukuWarung has attracted many big VC’s attention. At the same time, BukuWarung participated in the Startup Acceleration Program of the American Seed Accelerator Y Combinator. Y Combinator partner Gustaf Alströmer is bullish on BukuWarung – “There is a big opportunity for emerging markets to build digital infrastructure, especially in the post-pandemic era. We see BukuWarung following the path taken by the Indian financial apps Khatabook and OkCredit, and we believe it will also empower Indonesian microenterprises.”.
When it comes to the outbreak, Chinmay believes that this particular period has indeed allowed BukuWarung to develop further. “From my first visit to Southeast Asia seven years ago, I have observed a steady increase in Internet penetration in Indonesia every year. In the past six months, due to the impact of the pandemic, more and more enterprises choose to carry out online business to gain more customers. In such a special period, they need to have a good product to help them manage the cash flow.”
Meanwhile, BukuKas, an Indonesian electronic bookkeeping app, received a seed round led by Sequoia India in May and announced last week that it had secured US$9 million in pre Series-A round financing. In early August, Credibook, an Indonesian debt management application, received seed funding from Singaporean venture capitalist Insignia Ventures Partners and Indonesia fintech company Payfazz. Whether its BukuWarung, BukuKas or Credibook, they are all very young, and they all target the accounting needs of Indonesia’s MSMEs. Chinmay said “It is a very big market that can accommodate a lot of players. And what we should compete truly, is converting the merchants’ manual bookkeeping habits into digital bookkeeping.”