Startup Profile: UrbanClap
India's home services marketplace expands to Australia and the UAE to capture better unit economics
UrbanClap co-founders Abhiraj Bhal, Varun Khaitan and Raghav Chandra with the company’s employees. From Livemint
Introduction
Urbanclap is the “Thumbtack” of India and is an on-demand home services marketplace of vetted local providers that provide massage, tuition, beauty services etc.
The company was last valued at ~ $1B by a $75m series E led by Tiger Global in August 2019. The company’s founders have already cashed out in the series D, so are very focused on building up the company’s economic profile (operational profitability, growth) to go public. There is one gotcha in its strategy, which is that it’s India-only unit economics aren’t good enough to support that. It has to go international to solve this dilemma.
The Margin Dilemma
On-demand services marketplaces are typically very low margin businesses and require a lot of scale to make the dance of customer acquisition and transaction related revenues profitable, which is why the aspirations to go public just off the India market doesn’t make any sense (and naturally will be a problem for others in the India market like HouseJoy, Swiggy, Zomato etc). This is where international expansion becomes critical to take advantage of the technology and operating advantage of starting and dominating India while introducing better unit economics.
The company operates a verified marketplace for 20,000 local service providers, where it makes a cut of 15-25% for every booking.
In FY19, UrbanClap claimed to have completed around 3.3 million service orders, a sharp rise from around 1.2 million service orders in FY18. Gross transaction value (GTV) of all orders in the last financial year jumped to ₹400 crore / $56m from a GTV of ₹130 crore / $21m in FY18. GTV represents aggregate spends of a company’s customers in a particular financial period.
The firm claimed to have completed more than 620,000 service orders in April itself. This represented an annualized GTV of ₹1,000 crore / $140m and an annualized revenue run-rate of ₹200 crore / $28m , according to a company statement.
What I found most interesting is that while the domestic market gives the company some scale, the unit economics (and its investment in technology gets amortized by focusing internationally).
CEO & co-founder Abhiraj Bhal confirms this line of thinking:
“We believe that there is a huge opportunity to deliver high quality services in home repairs and beauty services in Australia. We have created a new axis in matching demand to supply,” said Abhiraj Bhal co-founder of UrbanClap, confirming the development. Price points in Australia are 4-5 times of India, Bhal said, making it a very lucrative country to do business in while keeping technology costs under control.
For Indian companies to achieve Public Market Value will require expansion outside to capture unit economic shortfall
Undoubtedly Tiger’s involvement at the board level means that the company has to find the right balance in order to have the kind of profile to go public, and so true value creation in the Indian market means domination of India first before expanding internationally to shore up unit economics.
15-20% of the company’s daily revenue comes from premium services like beauty services and the company recently shut down services like on-demand laundry, while balancing its efforts on lower end transactions like plumbing and repair jobs.
The company claims to have got its customer acquisition costs down to ₹400-500 / $5.61-7 per customer and it will be very interesting to see if it can achieve its financial goals with its expansion to the UAE and Australia.