When Egyptian B2B e-commerce platform Cartona last raised money in 2022, global and local investors were eager to invest in African startups solving the supply chain and operational challenges for retailers and suppliers in the fast-moving consumer goods (FMCG) industry.
Two years on, investors aren’t as enthused anymore as the business models of such startups, both asset-light and asset-heavy, across the continent have come under pressure, leading to retreats, closures, downsizing and mergers.
Yet, Cartona, which is “very close to reaching full EBITDA profitability,” according to founder and CEO Mahmoud Talaat, has managed to raise more money — this time, $8.1 million in a Series A extension ($5.6 million equity and $2.5 million debt) from new and existing investors.
Egyptian VC firm Algebra Ventures led the round, which brings Cartona’s total Series A to $20.1 million. Silicon Badia, lead investor from the first Series A tranche, and SANAD Fund for MSME also participated. Camel Ventures and GlobalCorp, on the other hand, provided the debt component.
Talaat told TechCrunch that the 4-year-old e-commerce platform raised from a significant cash position.
“We have double what we raised now in equity,” he said. That capital will be used to grow its market share in Egypt by deepening its operations in FMCG and HORECA (hotel, restaurant and cafe/catering), a vertical it launched over a year ago. In addition, Cartona may be looking to expand into other regional markets, including Saudi Arabia, and to explore other product lines within Egypt, the chief executive added.
Exploring new verticals with the asset-light model
Cartona first launched as an asset-light B2B platform connecting FMCG suppliers and wholesalers with retailers. A common criticism then was that asset-light models would find it difficult to retain customers and compete against asset-heavy B2B e-commerce platforms, which basically had more control of their tech and supply chain.
Asset-light marketplaces, including Cartona and Nigeria’s Omnibiz, have fairly dispelled such notions.
Talaat, in an interview with TechCrunch, said Cartona spent its first two years focusing on improving its tech, user experience, and fulfillment rates to the point where it matched the service level of some asset-heavy models, allowing it to raise money in 2022.
Afterward, the B2B e-commerce outfit turned its attention to improving its unit economics in an industry where volumes are high but making each order profitable is often challenging. Achieving progress on that front over the past two years and almost reaching full profitability, especially with the devaluation of the Egyptian pound against the dollar, made Cartona attractive to investors, according to Talaat.
Unsurprisingly, Cartona’s asset-light model is a contributing factor behind its push toward profitability. Talaat explains that Egypt’s informal market has a significant network of suppliers, wholesalers, and distributors that don’t need to be displaced or competed against but rather made more efficient with the tech tools that B2B e-commerce platforms provide.
“Our mission from day one was to support and enhance these partners instead of competing with them. We focus on technology, embedded finance, and other exciting product enhancements and features we’ve developed while they’re strong in operations, buying, and selling inventory,” Talaat remarked. “They already have good prices and experience and can locally deliver very fast for their clients. Because we partnered with these suppliers, we’ve not only scaled and grown to be the largest marketplace connecting all these suppliers in one place but also built a strong reputation.”
According to Talaat, over 30-40% of Cartona’s partner suppliers’ sales now come through the platform.
When a platform contributes a significant margin to suppliers, they’ll actively support its growth. Similar success can be replicated in other verticals.
Take, for instance, Cartona’s expansion into serving hotels, restaurants, and cafes. The vertical leverages the synergies between FMCG and restaurant supply bases, as many items needed by these businesses overlap, including fresh meat, chicken, fish and vegetables.
“We check our supply base and see what could work. For example, since we already have cosmetics in our marketplace, we could maybe add pharmacies that sell not only medicines but also cosmetics,” added Talaat, who founded Cartona with CTO Mahmoud Abdel-Fattah.
Business is growing
Cartona’s annualized gross merchandise volume (GMV) is about EGP 10 billion ($210 million), up from EGP 2.3 billion ($120 million) in 2022.
Interestingly, while the HORECA vertical, launched last year, represents a small part of Cartona’s business (around 7% of the company’s annualized gross merchandise volume), its blended take rates and average order value from 3,000+ customers are double what the platform receives from its FMCG customers. Talaat expects the vertical to contribute 15% of the startup’s GMV by the end of the year.
More than 180,000 retailers (up from 60,000+ in 2022) from both verticals manage over 40,000 SKUs on Cartona. These retailers, who get their orders from 4,500 suppliers across 17 Egyptian cities, handle stock and working capital via cash or credit orders.
Initially, Cartona facilitated retailers’ credit orders using equity because its local currency debt portfolio had not matured. But as the platform grew, it secured local currency financing, which now makes up over 90% of its portfolio, with only 10% coming from equity, Talaat explained during the call. Embedded finance now constitutes more than 20% of Cartona’s GMV, up from just 2-3% in 2022. As Cartona’s transaction volume increasingly involves credit, using local currency facilities is expected to expand in tandem with the platform’s growth.
“The asset-light nature of its model creates a scalable infrastructure that can quickly be adapted for entry into new markets and adjacencies. Cartona has also been a driving force for financial inclusion in the retail sector as more and more of its small merchants take advantage of inventory financing options,” Omar Khashaba, general partner at Algebra Ventures, said in a statement.
Challenging market but a massive opportunity
Egypt has over 400,000 shops and thousands of international and local brands, and the sector grows annually by 8%. Reports indicate that the overall retail market size is $120 billion, with the food and beverage market worth $70 billion.
Venture capital has driven market digitization in the country, spurring growth and competition among players like Cartona, the now-defunct Capiter, and MaxAB, which is currently in merger talks with Wasoko. Despite the millions of dollars of funding and the presence of similar companies across Africa, they have barely scratched the surface or created significant value for stakeholders in the supply chain and investors backing them.
However, Talaat believes it’s only a matter of time before this changes.
“All the companies combined represent a very small part of the market, which is still predominantly offline. I would say we only cover around 2-4% of the entire market. Despite knowing the market is huge, our real competition remains the offline transactions between companies, wholesalers, and retailers,” said Talaat. The education and penetration of B2B e-commerce is still in its early stages. It’s coming, and it will come, because we add real value to those retailers and suppliers, but it will take time given the market’s vast size.”
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