When GOJEK entered the streets of Jakarta in 2010, Indonesians instantly knew what to draw reference to. “Ojeks” – where GOJEK gets its name from, had been plying the city’s highways for years. The concept of the motorbike taxi, however, doesn’t exist in Bangladesh.
Motorbikes in Bangladesh cost twice as much as they do in India, explains Pathao’s COO Pardeep Grewal. The government also slaps tariffs which can go as high as 100 per cent per bike. The result of this is that motorbikes in Bangladesh are typically seen as aspirational goods rather than affordable modes of transport.
“Bangladesh has not yet adopted the motorcycle per capita penetration that you see in Southeast Asia,” said Grewal. “One of the things that we face a lot – and much sooner than the GOJEK team did – was supply constraints.”
But it’s a concept that makes so much sense for Dhaka’s debilitating traffic. According to Demographia’s World Urban Areas report, Dhaka is the world’s most densely populated city, packing over 47,000 people per square kilometre. The average speed of Dhaka traffic, Grewal adds, is a measly 7km per hour on average.
“(People in Dhaka use our product) because it’s so much faster – as opposed to taking a bus, rickshaw and then back to a bus. We see that we are solving a very important friction point. Motorcycles are just far more efficient because they’re more maneuverable,” said Grewal.
Pathao, which means “send it” in local Bangla, operates three verticals: ride-hailing, food delivery and courier delivery/e-commerce. Today, all three verticals clock over 100,000 transactions per day, with ride-hailing making the bulk of conversions on the app.
He adds that the company is also eyeing profitability for its courier delivery/e-commerce unit, having already broke even on a net inflow basis.
“On a per trip level, it’s always had positive unit economics. The big strategic focus on the courier service as a whole, is to make it profitable in the next 12 months…If we fast forward 3 to 4 years, we see the ride-sharing business as breaking even or even being profitable on a per trip basis,” said Grewal.
Pathao recently also confirmed it was on track to raise $50 million for its Series B round in mid-2019, with a likely top up from GOJEK in the round. Its other investors include Singapore’s Openspace Ventures, Osiris Group and Battery Road Digital Holdings.
Edited interview excerpts with Pathao COO Pardeep Grewal:-
We heard that Pathao is raising up to $50 million for its Series B round. Is this true?
Yes. We expect to close that in the next couple of months. We’re in late stage negotiations with a lot of VCs, tech funds, financial and strategic investors from around the world. We’re at a very interesting stage in our growth. I think the next couple of years are going to be fantastic in terms of the path we’re trying to unlock and go down. A part of that is making sure we find the right investors, so we’re taking our time to find the lead – but in general there is a lot of investment and appetite in Bangladesh.
GOJEK is also an investor in Pathao. Will they re-invest?
GOJEK has been incredibly supportive, and at this point are also very eager to bring in fresh sources of capital and fresh investors to help us create this very important company for Bangladesh.
They’ve been a constant source of inspiration for us. Their founders are really close to our founders, and we spend a lot of time strategising and having jam sessions on where to play, how to play. One of the really great things about GOJEK is that we can actually learn from all of their experience.
We’ve decided to focus and entrench ourselves in the three key verticals that we have today – ride-sharing, food delivery and e-commerce and then add payments later on top of it. We want to grow that and become the category position leader in all of those and add services later. That’s a strategy that’s been advised to us by GOJEK as well.
What is Pathao’s revenue structure like?
It’s roughly 3:1:1 in terms of the amount of transactions across the three verticals, with the biggest vertical being ride-sharing. Two-wheeled driving makes up the biggest proportion of transportation. The reason why it took off so fast is because we’re solving a problem that people have.
Our e-commerce arm is growing in a very healthy manner, and is breaking even on a net inflow basis. On a per trip level, it’s always had positive unit economics. The big strategic focus on the courier service as a whole, is to make it profitable in the next 12 months. That’s something that’s we’re driving towards.
One of the reasons why we’re focused on building this platform approach with the integrated payments layer that will empower everything is that there are different profit expectations for different verticals. In terms of expectations for profit, definitely e-commerce and food delivery are high up there.
If we fast forward 3 to 4 years, we see the ride-sharing business as breaking even or even being profitable on a per trip basis.
What challenges do you encounter when it comes to scaling in Bangladesh?
One that is very apparent is that Bangladesh has not yet adopted the motorcycle per capita penetration that you see in Southeast Asia. There are way more motorcycles in Indonesia than there are in Bangladesh. A part of that has to do with the tax structure.
Motorcycles in Bangladesh are more expensive. A motorcycle in Bangladesh costs twice as much as it costs in India. As a result, a motorcycle is somewhat more of an aspirational good. So when we think about growing and scaling our transportation product in the two-wheel space (which we’re the category leader in), one of the things that we face a lot – and much sooner than the GOJEK team did – was supply constraints.
The concept of the motorcycle taxi was already well-established by the time GOJEK launched too. For us, we have to establish the concept of the motorcycle taxi before we can scale that up.
What about cars?
Cars are even more expensive. The average tariff on the motorcycle is anywhere from 80 to 100 per cent. For cars, it can go as high as 300 per cent. So these vehicles and modes of transportation are very much exclusive to wealthier individuals. For the middle class that we’re targeting, transportation options involve a combination of bus and auto rickshaws (of which there aren’t enough of in Dhaka). Auto rickshaw supply is regulated, and there isn’t enough for the demand there is.
Dhaka is probably the only mega city in the world where manual pedal bike rickshaws make up a huge portion of the way people get around. These are for short trips only – and remember, these are traditional rickshaws, so there is no motor. In Dhaka, you can find all these different vehicle classes clogging the roads which leads to awful congestion. The average speed of traffic in Dhaka is something like 7km an hour. It’s slightly faster than walking.
What is your cost structure like? How do you keep costs low for customers?
Our average ride is about 130 taka which is $1.32-$1.35 and that’s typically for a 5-7 km commute. The way that people use our product in Dhaka is usually for commuting and they use it because it’s so much faster – as opposed to doing a bus, rickshaw and then back to a bus. We see that we are solving a very important friction point. Motorcycles are just far more efficient because they’re more maneuverable.
What’s different in Bangladesh compared to countries like Indonesia and Vietnam is that the motorcycle market is still growing. And one of the positive things is that there is local manufacturing which will be coming online this year. The underlying market for motorcycle sales has been growing significant year over year. So that’s one of the positive tailwinds that we have.
What about other aspects of the business? Like dealing with regulators, being a market educator, structuring internal team processes?
From a regulatory standpoint, I think the Bangladeshi government recognises the importance of tech and investing in innovation and technology as something really important for the future. In general, it is quite supportive of what we’re doing and we are viewed as a kind of a poster child. Elius is already a bit like a local celebrity and inspiration for all kinds of entrepreneurs and young people in Bangladesh. I think having more people like him in the country is good for the country itself.
From a market and behaviour standpoint, we take that very seriously and I think in some way, we are creating the market as well as expanding it. So we have to show the value that these types of services can provide. As soon as they try it, the value proposition becomes clear, and they become regular customers. We think that educating the market is one of our jobs.
From an internal company perspective, we spend a lot of time thinking about our company, team and operation. We want to make sure that we have the right structure in place so that we can continue to move fast and stay nimble as we grow as a company and develop in terms of sophistication and how the company operates.
I’m happy to say that the company today is far better organised than it was a year ago and it allows us to continue to deploy a product every two weeks because we have an internal tech and product team. They’re actually solving problems for their friends and family, which is one of the strongest intrinsic motivators that you can have. Making sure that the company is structured in a way that allows people to operate at the speed you want people to operate at – that’s really important for us.
I think the most difficult thing is that Bangladesh as a market is underinvested in the tech ecosystem space. We may be the most advanced tech company in the ecosystem but there just needs to be more capital flowing into the country. We’re kind of before that inflection point where all kinds of people will be investing in Bangladesh and I think it’s just a matter of time before people recognise that.
What is the Bangladesh startup ecosystem like? Are local startups struggling to fundraise?
In Bangladesh there are a lot of seed stage, pre-Series A opportunities, but we’ve not had a really strong Series B or C stage investment yet. It’s just a matter of time before we get there, but being the pioneer is always going to be a challenge.
For us, it’s about making sure that we’re internally organised and structured, making sure that we have really good metrics and a really good team, and we believe that good outcomes will follow if we do everything right.
I know there are other seed and pre-Series A companies that fundamentally have good product and good tech and customers, but they have a really hard time raising money. It’s a tough market to raise money in.
The local Bangladeshi investors that have capital aren’t necessarily educated about the way those deals should be structured, and typically expect way more return than what is expected. In Bangladesh, a lot of investors would expect majority control from the get-go, and those type of deals just don’t tend to work out well.
So from a local scene investor standpoint, it’s very under-developed. There’s an education gap. That’s why you see seed and angel investments coming in from outside Bangladesh. Pathao’s seed and angel investors for instance, were from Jakarta and Singapore.
What are some of the attractions and drawbacks of investing in Bangladesh?
There are several. In Bangladesh, smartphone penetration exceeded 40 per cent of the population last year. From a GDP growth standpoint, it was revised to 8.13 per cent, a record for the country. According to some global estimates, it is one of the fastest growing economies in the world. Population wise, Bangladesh is the densest country in the entire world. Education and literacy rates are pretty high, the government is stable.
At this point though, I think there are a few things missing. One is, we’ve not seen a successful company in Bangladesh yet, so it’s a bit difficult for people to make that jump. It’s a bit of a chicken and egg problem.
Second is, Bangladesh as a market is not very well understood by investors from Southeast Asia and India. For a lot of VCs, their investment committee hasn’t “greenlit” Bangladesh as a destination for capital. The interest is there, but there are a lot of limitations on whether that capital is allowed to flow.
Bangladesh is also right beside India, so I think a lot of the investable capital tends to flow to India because it’s a country that’s 10 times larger. Indian funds also tend to be focused domestically, simply because there are so many investable opportunities there.
I don’t think there have been many investable opportunities in Bangladesh before Pathao too, so part of our job is also to educate Indian investors about Bangladesh because the underlying core characteristics are very similar. We want to put Bangladesh on the map and educate people about why this country is so interesting.
Where do you see foreign investor interest coming from at the moment?
Right now, mainly the funds in Southeast Asia, China, India as well as abroad but primarily from those three geographies because Bangladesh as a country is more similar to the surrounding area. At this point there have been some large-scale investments made by strategic investors. Ant Financial and Alibaba is heavily present in Bangladesh. The IFC has invested in a lot of emerging countries like Bangladesh, and there are other strategic investors that are taking a look, such as GOJEK in us.