Egypt’s Cartona raises $8.1M as investors shy away from B2B e-commerce in Africa

When Egyptian B2B e-commerce platform Cartona last raised funding in 2022, global and local investors were keen to invest in African startups solving supply chain and operations challenges for retailers and suppliers in the fast-moving consumer goods (FMCG) sector.

Two years later, investors are no longer so enthusiastic as the business models of these startups, both asset-light and asset-heavy, across the continent are being tested, leading to exits, 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 in equity and $2.5 million in debt) from new and existing investors.

Egyptian venture capital firm Algebra Ventures led the fundraising, bringing Cartona’s Series A total to $20.1 million. Silicon Badia, the lead investor in the first tranche of Series A, and SANAD Fund for MSME also participated. Camel Ventures and GlobalCorp, on the other hand, provided the debt component.

Talaat told TechCrunch that the four-year-old e-commerce platform raised the funding from a large cash position.

“We have double what we raised in equity,” he said. The capital will be used to increase its market share in Egypt by deepening its operations in the FMCG and HORECA (hotel, restaurant and cafe/catering) sectors, a vertical it launched over a year ago. In addition, Cartona may look to expand into other regional markets, including Saudi Arabia, and explore other product lines in Egypt, the CEO added.

Exploring new vertical markets with the asset-light model

Cartona was initially launched as an asset-light B2B platform connecting FMCG suppliers and wholesalers with retailers. A common criticism at the time was that asset-light models would struggle to retain customers and compete with asset-heavy B2B e-commerce platforms, which essentially had more control over their technology and supply chain.

Asset-light markets, including Cartona and Nigerian newspaper Omnibiz has virtually dispelled these misconceptions.

Talaat, in an interview with TechCrunch, said Cartona spent its first two years focusing on improving its technology, user experience and execution rates to the point where it matches the service level of some asset-intensive models, allowing it to raise funds in 2022.

The B2B e-commerce company then focused on improving its economic performance in a sector where volumes are high but it is often difficult to make each order profitable. According to Talaat, the progress made in this area over the last two years and the almost total profitability, especially with the devaluation of the Egyptian pound against the dollar, have made Cartona attractive to investors.

Unsurprisingly, Cartona’s asset-light model is a contributing factor to its move toward profitability. Talaat explains that Egypt’s informal market has a large network of suppliers, wholesalers, and distributors that do not need to be replaced or competed with, but rather made more efficient through the technological tools provided by B2B e-commerce platforms.

“Our mission since day one has been to support and enhance these partners instead of competing with them. We focus on technology, embedded financing and other exciting product enhancements and features that we have developed while they are strong in operations, buying and selling inventory,” Talaat noted. “They already have good pricing and experience and can deliver locally very quickly to their customers. Through our partnership with these vendors, we have not only evolved and grown to become the largest marketplace connecting all of these vendors in one place, but we have also built a strong reputation.”

According to Talaat, more than 30 to 40% of Cartona’s supplier partner sales now come from the platform.

When a platform generates significant margin from suppliers, they will actively support its growth. Similar success can be replicated in other verticals.

Take for example Cartona’s expansion into hotel, restaurant and cafe services. This vertical exploits synergies between the FMCG and restaurant supply bases, as many of the products these companies need overlap, including fresh meat, chicken, fish and vegetables.

“We are analyzing our supply base and seeing what could work. For example, since we already have cosmetics in our market, maybe we could add pharmacies that sell not only medicines but also cosmetics,” added Talaat, who founded Cartona with CTO Mahmoud Abdel-Fattah.

The company is growing

Cartona’s annualized gross merchandise volume (GMV) is approximately EGP 10 billion ($210 million), up from EGP 2.3 billion ($120 million) in 2022.

Interestingly, while the HORECA segment, launched last year, represents only a small part of Cartona’s business (around 7% of the company’s annual gross merchandise volume), its blended participation rates and average order value from over 3,000 customers are twice as high as what the platform receives from its FMCG customers. Talaat expects the segment to contribute 15% of the startup’s annual gross merchandise volume by the end of the year.

More than 180,000 retailers (up from over 60,000 in 2022) from both verticals manage over 40,000 SKUs on Cartona. These retailers, who receive their orders from 4,500 suppliers in 17 Egyptian cities, manage their inventory and working capital through cash and credit orders.

Cartona initially facilitated retailer credit orders using equity because its local currency debt portfolio was not yet mature. But as the platform has grown, it has secured local currency financing, which now accounts for more than 90% of its portfolio, with only 10% coming from equity, Talaat explained on the call. Embedded financing now makes up more than 20% of Cartona’s GMV, up from just 2-3% in 2022. As Cartona’s transaction volume increasingly involves credit, the use of local currency facilities is expected to grow in line with the platform’s growth.

“The lightweight nature of its model creates a scalable infrastructure that can be quickly adapted to enter new markets and adjacent areas. Cartona has also been a driver of financial inclusion in the retail sector as more of its small merchants take advantage of inventory financing options,” said Omar Khashaba, general partner at Algebra Ventures, in a statement.

A difficult market but a huge opportunity

Egypt has over 400,000 stores and thousands of international and local brands, and the sector is growing at an annual rate of 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, fueling growth and competition between players like Cartona, the now-defunct Capiter, and MaxAB, which is currently in merger talks with Wasoko. Despite the millions of dollars in funding and the presence of similar companies across Africa, they have only scratched the surface or created significant value for supply chain stakeholders and the investors behind them.

However, Talaat believes it is only a matter of time before this changes.

“All the companies together represent a very small share of the market, which is still mostly offline. I would say we only cover about 2-4% of the entire market. While we know the market is huge, our real competition remains offline transactions between businesses, wholesalers and retailers,” Talaat said. “The education and penetration of B2B e-commerce is still in its early stages. It is happening and it will happen because we are adding real value to these retailers and suppliers, but it will take time given the huge size of the market.”

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