Jugnu raised $22.5 million to supply kiryana stores, then gave up the warehouses

Jugnu raised $22.5 million in March 2022 to sell to Pakistan's corner shops, about twice the top of the $1 million to $11 million range that the Pakistan Startup Ecosystem Report 2021 gave as usual for a Pakistani Series A. Sixteen months later it said it would stop running its own warehouses, trucks and stock. The company still exists, but almost nothing about its results has been published since, and the most detailed account of how the bet went is a few lines in the half year report of one of its investors.

A software company that grew a shop

Jugnu did not start from nothing. Its parent, Retailistan, was incorporated on 28 January 2015 and, in the words of Systems Limited's filing, was founded and managed by four engineers with deep experience in Pakistan's retail supply chain. Its product, SalesFlo, is used by most of the major producers and distributors of consumer goods in Pakistan to run their sales operations. The filing lists three subsidiaries: one aimed at South East Asia, one providing back office services to consumer goods companies, and Jugnu, which was to disrupt the B2B retail supply chain.

Jugnu launched in 2019 under Sharoon Saleem, its chief executive, and Yasir Suleman Memon, both former Unilever executives and cofounders of SalesFlo. The idea was to sell directly to small shops through an app. The figures cited when the Series A was announced set out the opening: more than one million kiryana stores without convenient inventory procurement, and over two thirds of retail stores never served directly by an organised distribution channel. A shopkeeper in that position buys from a wholesaler who buys from a distributor, and each step takes a margin. Jugnu offered to deliver from the supplier to the shop, with ordering on a phone.

Money from a listed software house and a Saudi marketplace

Systems Limited moved first. Its board approved the purchase of 20 percent of Retailistan on 28 May 2021 at a cost of Rs468 million, routed through its subsidiary Systems Ventures, and the group's accounts date the acquisition to 19 July 2021. The arithmetic implies a value of roughly Rs2.34 billion for the whole of Retailistan (Rs468 million divided by 0.20). Systems said the investment was meant to deepen its presence in digital retail and complement its stake in EP Systems, which runs the OneLoad product, giving it access to what it called a digital mapping of the retail universe.

A seed round of $1.9 million followed in July 2021. The Series A came in March 2022, led by Saudi B2B marketplace Sary with Sarmayacar and Systems Limited taking part. At the announcement Jugnu said it had connected more than 30,000 kiryana stores and small businesses directly with manufacturers. ProPakistani puts Jugnu's total funding at $25.7 million over three rounds. The seed and the Series A add up to $24.4 million, which leaves about $1.3 million from a third round that we could not find described.

The pivot of July 2023

In July 2023 Jugnu announced that it would pivot to a technology platform and move away from self managed fulfilment centres, logistics and its inventory model, in favour of an asset light one. It said it had reached more than 100,000 mohalla and kiryana stores by then. The company was open about the cost to its own people.

“Unfortunately, this shift in business model will have a significant impact on some of our teams.”

Jugnu employed about 210 people at the time and said the structure of the new team was still being settled. It rejected corruption allegations as unsubstantiated, and said its inventory record accuracy was 99.9 percent, inventory losses were under 0.2 percent, procurement ran through SAP systems and its accounts had been audited by a Big Four firm since the start. Those are the company's own figures.

The timing fits a market that had turned. Pakistani startups raised $5.2 million in the April to June 2023 quarter, down 95 percent year on year, according to Business Recorder, and the health startup MedznMore, which had raised more than $14 million, shut in June 2023. A company that owns stock needs fresh cash each time its sales grow, and in mid 2023 that cash was scarce.

What the investor's report says

Systems Limited gave shareholders its own reading in the half year report to 30 June 2023. It said it had been absorbing a share of loss from its investment in Retailistan, which had been weighing on margins, and that since it had neutralised the cost of the investment, no further adverse effect on profit was expected. The accounts show Retailistan has since been renamed SalesFlo (Private) Limited, and the group's notes still list it as a 20 percent owned associate, accounted for under the equity method.

Under that method the investor books its share of the associate's profit or loss against the carrying value of its stake. Our reading is that Systems has already taken its share of losses against the Rs468 million it paid, so further losses at the associate no longer reduce its profit. The report does not give the carrying value of the stake or Jugnu's own losses, and it does not say how far SalesFlo's software business offset the cost of the shop.

The magazine's view

Two features of the model made it hard to fund through a downturn. The first is margin. A distributor that delivers staples to small shops earns a thin spread on each order, so profit depends on volume per delivery route, and that volume takes years of repeat ordering to build. The second is working capital. Owning stock means paying suppliers before shops pay, so growth consumes cash, and a slowdown in fundraising turns into a shortage within months.

The pivot moves both problems to someone else. A platform that matches manufacturers with shops, and leaves stock and trucks to the suppliers or to logistics partners, earns smaller revenue per order but needs far less money to grow. It also leans on what the parent already had: SalesFlo's software already sits inside the sales operations of many consumer goods makers, which gives a route to those suppliers that a standalone startup would have to build.

What is unknown matters most. We found no published figures for Jugnu's revenue, losses or order frequency, and no update on how many of the 210 staff remain. The group's notes still carry SalesFlo as a 20 percent associate, so Systems Limited's next annual accounts are where the first fresh numbers would appear.