Paperfly co-founders buy out Indian investor’s entire 82% stake

In a rare event in the country's startup landscape, local co-founders have bought out the entire 82% stake in the third-party logistics (3PL) startup Paperfly from its Indian investor Ecom Express at an undisclosed sum.

Paperfly, leaving behind its cash crunch that caused several weeks of halt in operations in September last year, now aims to regain market share and achieve profitability by the end of September this year, said its founder Shahriar Hasan in a recent conversation with The Business Standard.

"Our foreign investor wanted an exit, we had an amicable deal for buying out their stake, and the share transfer process was completed last Thursday," said Rahath Ahmed, one of the co-founders.

They, however, declined a TBS request to disclose the deal value at which the foreign stake in the firm was transferred, citing a "non-disclosure agreement".

Industry sources with knowledge of the matter, however, told TBS that the buyout price was less than Tk10 crore, which Ecom Express was looking for at the initial phase of its exit efforts last year.

Ecom Express had a cumulative investment of nearly Tk140 crore, of which Paperfly as a firm received nearly Tk100 crore and the rest of the amount Ecom Express spent to buyout the early stage investors' stakes.

Both Paperfly, a pioneer in technology-leveraged doorstep pickup and last mile delivery services in the country, and Ecom Express, which is a top player in the Indian 3PL market, were counting on the smart logistics potential in the densely populated market of Bangladesh during the pandemic, which brought an online commerce boom.

After the first round of an around Tk100 crore investment in Paperfly in 2021 that helped build the Paperfly infrastructure for a nationwide pickup and delivery network alongside the technology platform and the teams, Ecom announced another Tk102 crore investment in April 2022.

However, the changed global landscape of startup investments after the Ukraine War forced Ecom Express to backtrack from the planned second round of investment.

Ecom Express had to halt its move for the expected over Rs4,600 crore initial public offering then in the Indian stock market and later depend on smaller private equity due to the downturn in technology stocks then.

"It (the cancelled tranche of the announced investment) was unfortunate for us in an already tough business situation then, caused by stiff competition and continued cost escalation," Paperfly co-founder and CEO Razibul Islam recently told TBS at his office in the capital.

Shahriar Hasan said that alongside the business-to-consumer (B2C) 3PL segment, Paperfly was getting an increasing response from the country's top conglomerates for its B2B (business-to-business) logistics outsourcing service.

An increasing number of companies, especially in the consumer durable industry like electronics and appliances, often find it cost-effective to use third-party specialised services to distribute their slow-moving goods across the country, as maintaining their own fleet often lacks the needed economies of scale while serving many business customers at a time 3PL firms ensure it, he said.

However, the Paperfly had a hiccup in the continuation of the needed investments.

The cash crunch forced Paperfly to halt operations in late September last year, when it had over Tk10 crore of its total funds stuck in deposits with a troubled non-bank financial institution and as receivables from a collapsed, errant e-commerce platform, Evaly.

"Leaving our years-long successful career in corporate jobs, we built Paperfly to solve the logistics problem in the burgeoning economy of Bangladesh and to offer businesses and people innovative, convenient, and cost-effective smart logistics solutions," said Hasan.

"We did not give up during hardship and managed to resume operations in a few weeks last year with the help of our loyal customers and the most modern hard and soft infrastructure we already had built," he added.

He mentioned the state-of-the-art digital platform for smart operations, the home grown semi-automated sorting facility at its warehouse, and the in-house technology and business talents as Paperfly's biggest assets.

Despite some interim ups and downs, the demand for courier services has been on the rise, said Razibul Islam, adding that only the market share scenario within the industry saw changes from time to time.

According to Paperfly market studies, the average daily number of courier deliveries, including traditional services and e-commerce platforms' own channels, crossed half a million in Bangladesh this year, more than double to that three-four years back.

Businesses and individuals across the country in need of doorstep pickup and delivery services, still find it profitable and convenient.

For instance, the charge for the B2C segment service of collecting the cash on delivery and sending it to the sellers is less than that of the processing fee for online e-commerce payments.

Rahath Ahmed said, "Specialisation and optimisation of resources is our unique strength that will help us grow to a new scale in the coming years."  

Not even 3% of retail market trades are online here, and there exists every single reason that will fuel the growth, he added.

"Bangladesh has seen flourishing social media-based commerce; e-commerce platforms are selling every day, and an ever increasing number of traditional firms are going online to boost sales." 

Paperfly is delivering some 26-30 thousand orders daily nowadays, and it expects to regain market share in a profitable manner.

"We will keep investing our efforts, time, talent, and capital in the next leg of our growth," he said, adding that the firm will be looking for fresh investments whenever needed. 

In 2024, the firm expects over Tk40 crore in revenue, said Rahath Ahmed.