Egypt’s Cartona raises $8.1 million as investors pull out of B2B e-commerce in Africa

When Egyptian B2B e-commerce platform Cartona last raised money in 2022, global and local investors were eager to invest in African startups that solve supply chain and operations challenges faced by retailers and suppliers in the fast-moving consumer goods (FMCG) industry.

Two years later, investors are less enthusiastic as the business models of such startups, both small and large, across the continent have come under pressure, leading to exits, closures, job cuts and mergers.

Still, Cartona, which founder and CEO Mahmoud Talaat says is “very close to reaching full EBITDA profitability,” managed to raise more money — this time $8.1 million in a Series A round ($5.6 million in equity and $2.5 million in debt) from new and existing investors.

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

Talaat told TechCrunch that the four-year-old e-commerce platform was founded with significant capital.

“We have twice as much equity as we have raised now,” he said. The capital will be used to increase market share in Egypt by deepening its FMCG and HORECA (hotels, restaurants and cafes/catering) businesses, a vertical it launched more than 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 verticals with an asset-light model

Cartona was first launched as an asset-light B2B platform connecting FMCG suppliers and wholesalers with retailers. A common criticism was that asset-light models would struggle to retain customers and compete with high-demand B2B e-commerce platforms that generally had more control over their technology and supply chain.

Low asset markets including Carton and Nigerian Omnibiz effectively dispelled such notions.

Talaat told TechCrunch that Cartona spent the first two years focusing on improving its technology, user experience, and order fulfillment rates until it achieved service levels comparable to some asset-heavy models, allowing it to raise funding in 2022.

The B2B e-commerce company has since focused on improving unit economics in an industry where volumes are high but making each order profitable is often a challenge. Making progress on that front over the past two years and nearly reaching full profitability, especially with the devaluation of the Egyptian pound against the dollar, has made Cartona attractive to investors, according to Talaat.

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

“Our mission from day one has been to support and grow these partners, rather than compete with them. We focus on technology, embedded finance, and other exciting product enhancements and features that we developed when they were strong in operations, buying and selling inventory,” Talaat noted. “They already have good pricing and experience, and can deliver very quickly locally for their customers. Since we partnered with these vendors, we have not only grown and expanded into the largest marketplace for all of these vendors in one place, but we have also built a strong reputation.”

According to Talaat, more than 30-40% of Cartona’s vendor sales now happen through the platform.

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

Take, for example, Cartona’s expansion into hotels, restaurants and cafes. The division is leveraging synergies between FMCG and restaurant supply bases, as many of the items these businesses need overlap, including fresh meat, chicken, fish and vegetables.

“We are looking at our supply base and what could work. For example, since we already have cosmetics in our market, we could 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 annual gross merchandise value (GMV) is around EGP 10 billion (USD 210 million), while in 2022 it was EGP 2.3 billion (USD 120 million).

Interestingly, while the HORECA vertical, launched last year, is a small part of Cartona’s business (around 7% of the company’s annual gross merchandise volume), its combined acceptance rates and average order value from its 3,000-plus customers are twice as high as what the platform receives from its FMCG clients. 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) across both verticals manage more than 40,000 SKUs on Cartona. These retailers, who receive orders from 4,500 suppliers in 17 Egyptian cities, handle inventory and working capital through cash or credit orders.

Initially, Cartona made it easy for retailers to place credit orders using equity because its local currency debt portfolio had not matured. However, as the platform has grown, it has secured local currency financing, which now accounts for over 90% of its portfolio, with only 10% coming from equity, Talaat explained on the call. Embedded financing now accounts for over 20% of Cartona’s GMV, up from just 2-3% in 2022. As Cartona’s transaction volume increasingly includes credit, the use of local currency facilities is expected to expand as the platform grows.

“The asset-light nature of this model creates a scalable infrastructure that can be quickly scaled to enter new markets and neighborhoods. Cartona has also been a driving force for financial inclusion in the retail sector, as more and more of its small merchants are turning to inventory financing options,” Omar Khashaba, general partner at Algebra Ventures, said in a statement.

A demanding market, but a huge opportunity

Egypt has over 400,000 stores and thousands of international and local brands, and the sector is growing by 8% annually. Reports indicate that the total retail market is worth $120 billion, with the food and beverage market worth $70 billion.

Venture capital has fueled the digitalization of the market 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 millions of dollars in funding and the presence of similar companies across Africa, they have barely scratched the surface or created significant value for supply chain stakeholders and the investors who back them.

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

“All companies together are a very small part of the market, which is still mostly offline. I would say we only cover about 2-4% of the total market. Despite knowing that the market is huge, our real competition is still offline transactions between companies, wholesalers and retailers,” Talaat said. The education and penetration of B2B e-commerce is still in its early stages. It is coming and will come as we add real value to these retailers and suppliers, but it will take time given the huge size of the market.”