ShopUp accumulates losses of Tk1,277 crore

To build a gigantic nationwide supply chain network for serving over 3 crore people, B2B commerce and smart courier startup ShopUp has already burnt 63% of its share capital as its accumulated losses surpassed Tk1,277 crore at the end of June 2023, according to its latest audited financial statements.

ShopUp Pte Ltd, the Singapore-based parent company of Bangladeshi B2B commerce platform Mokam, nationwide smart courier service Redx and the lately launched FinTech Onkur, reported a 55% growth in its consolidated revenue that surged to $129 million in the 2022-23 fiscal year.

Mainly wholesale supplies of essential commodities and branded fast moving consumer goods (FMCG) to retail shops across the country that serves over "3 crore consumers" fueled its revenue growth and the company now eyes higher business growth and continuous improvement to make net profit in the upcoming 2024-25 fiscal year.

Unlike the previous fiscal years of subsidised sales growth, in the 2022-23 fiscal year it managed to show some 1.3% gross profit — the profit from only producing or procuring and selling.  However, the gigantic administrative, selling, distribution and financial expenses alongside some taxes resulted in a net annual loss of over $49 million, a 23% rise year on year that deepened its accumulated losses to $118 million, up from $69.13 million in the previous year.  

The amount of adding up losses for the past five years was over Tk1,277 crore based on the official exchange rate on the reporting year's last day 30 June 2023.

ShopUp, backed by big name venture capital (VC) investors like Sequoia, Surge, Valar Ventures, Tiger Global, Flourish and some others, raised a cumulative share capital of $187.62 million in total, making it a poster child of fundraising as it became a top recipient of VC funds to operate in Bangladesh.

ShopUp's Dhaka office, in a statement, told TBS "The accumulated loss was for the entire period of ShopUp's existence since 2018 and we are improving every year to accomplish our mission."

Actual losses in the past financial year decreased by 17%, if the over $14 million employees stock ownership plan (ESOP) expenses are excluded, ShopUp said, adding that the non-cash expense was accumulating since the beginning, but was charged only in the FY2022-23 to "encourage everyone working hard to build ShopUp."

Meanwhile, its net loss margin, which indicates how much of the earned revenue was booked as the net loss after all taxes and expenses, came down to less than 38%, from 48%, 58% and 178% in the fiscal years 2021-22, 2020-21 and 2019-20, respectively. Thanks to the revenue growth every year that is producing an improving curve.

"Post the reporting period ended in June last year, we have achieved significant progress in our profitability journey, both in terms of business growth and cost control. We have already reached EBITDA (earnings before interest, tax, depreciation and amortization) profitability in December 2023 and we are planning for a yearly positive net profit in the upcoming 2024-25 fiscal year," reads ShopUp statement.

Venture Capital and Private Equity Association of Bangladesh Chairman Shameem Ahsan told TBS, "A faster and deeper market penetration was the venture capital ballgame before the global interest rate hikes in 2022. Burning capital to raise more capital until failing was a common trend then. Not anymore."

"Nowadays, startups have to show a clear profitability roadmap along with signs of improving and I hope ShopUp is doing the same to sustain and thrive," added Shameem Ahsan, a technology entrepreneur turned investor.

"Enough cash to continue operations during the global funding winter that has drastically reduced investment flows is a must for startups now," he added.

Concerns turned down by ShopUp

Going through the financial details, analysts raised two red flags regarding ShopUp's 2022-23 performance— gigantic receivables that generally indicate aggressive credit selling and a significant drop in its net cash which is the cash in surplus of debt liabilities.

ShopUp reported a $38M in receivables at the end of last June, while its net cash being held dropped to $23 million, from $77 million. At the end of 2022-23 its debt surged to $46 million, from $10 million in the previous year, while its cash fell to $69 million from $87 million.

"We run one of the largest supply chain and distribution networks of Bangladesh with 427 hubs spanning 64 districts delivering approximately 10 lakh metric tonnes of essentials and fast moving consumer goods annually," said ShopUp.

"We are still in a very strong position. Having $69 million in hand the cash concerns are not very relevant for us right now. Also, we are actively considering new avenues of investment to further propel our vision of building the largest commerce model for the emerging world," it added.

"These expansion plans aim to cement ShopUp's position as a premier tech-enabled distribution platform in other emerging markets too, fostering financial inclusion and streamlined commerce for the next billion consumers," its statement reads.

Of the major ShopUp business units, Redx posted an annual revenue of $13.06 million in the FY 2022-23, up from $12.53 million, despite the ongoing e-commerce slowdown. Revenue of Mokam that supplies goods to retail stores more than doubled to over $113 million as the company reached more retail shops.

It also had some less than $2 million in revenue from facilitation fees, commission, IT support and service income, down from around $8 million in the previous fiscal year. 

ShopUp, started in 2018 with a mission to connect producers and several million neighbourhood retail stores and earn its own revenue. It introduced a new commerce model by integrating logistics, embedded financing and payment processing for an enabling ecosystem.

Already connecting "over 3 crore people" who buy from the nearby shops being served by ShopUp, Shopup now eyes a total of 700 distribution hubs, significantly up from the existing number of 427, across the country by the end of next year to enhance its market penetration.

It also eyes a market expansion in other emerging markets where SMEs are the cornerstone of economic prosperity and ShopUp can play a big role there, the company said.

First generation B2C ecommerce platform PrioShop, already converted itself into a B2B commerce platform and it raised some $5 million in venture capital funds recently to expand into the potential market of 17-18 crore people.

Sindabad, in 2016 pioneered the technology-enabled B2B commerce in the country and having several foreign investors onboard also continues its business of wholesale supplies.

Bangladesh, already having over 2,500 recognized startups operating in a wide range of fields including e-commerce, logistics, FinTech, Agri Tech, Ed Tech, Health Tech alongside ICT and AI, has been lagging behind most of the comparator economies in terms of a robust startup ecosystem.

Having a significant rise to $415 million in startup investments in 2021, startup investment in Bangladesh drastically dropped to $103 million in 2022 and $72 million in 2023.

Over the past two years of decline in investment flows and piled up losses, the startup sector had to downsize to survive that cost at least a-third jobs, according to the industry people. 

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