Bas Lustenhouwer, CFO of Nivoda, joins our CEO, Anil Stocker, for a deep-dive on building a successful B2B marketplace, the role of payment terms in their impressive growth, and a peek at their future plans! In the conversation we cover:

• Nivoda's founding story.
• The unique dynamics of the global diamond supply chain, and why working capital is so crucial.
• How Nivoda found traction with suppliers and buyers by fixing very real problems in the supply chain.
• Why buyers that use flexible payment terms have a higher share of wallet and retention.
• How payment terms have helped Nivoda to disrupt a largely offline industry.
• Nivoda's fundraising journey, why VCs are backing marketplaces, and the surge of B2B eCommerce.
• The scope for AI in B2B commerce.
• And, will lab-grown diamonds take over from natural diamonds?

"We often talk about share of wallet. How much of their total purchases are they placing through the platform? Another really important metric is retention. Do we keep the customers that we have and do they come back every month? And when we look at customers that are buying on credit versus customers that are not buying on credit, on all of these metrics, the credit customers score better."
- Bas Lustenhouwer

Watch the podcast

Takeaways

1. B2B commerce is full of friction: Businesses like Nivoda are succeeding wherever traditional industries are fragmented. The B2B market dwarfs B2C by many orders of magnitude, yet is far behind it in terms of digitisation. Consumer retail has already heavily shifted to eCommerce, and B2B retailers that harness automation to remove the friction will be the future market leaders.
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2. Supply vs demand isn't always a chicken and egg scenario: Nivoda made it incredibly simple for suppliers to list inventory in their marketplaces by removing any hurdles in the way of getting set up. Despite being a middleman, they've been able to reduce costs for all participants in the supply chain by removing much of its friction.
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3. Payment terms grow revenue: The diamond industry has a 250-day cash conversion cycle, and a high cost of goods. As a highly fragmented space, with a multitude of small suppliers and buyers, traditional financing from banks has not been an option. By using Kriya PayLater, Nivoda provides buyers 30-60 day terms, deferring payment long enough to give them time to purchase upfront, sell to their end consumer and get paid themselves. Because of the value provided by this liquidity, Nivoda sees that buyers that pay on credit perform significantly better in terms of revenue and retention

"So, we always knew that a lot of our customers wanted payment terms, but we were still sort of almost taken by surprise how fast it went. So when we actually launched the product, I think within less than a few months, maybe, maybe less than six months, we were already selling a third of our platform on credit. I think as for today, it is about 50%."
- Bas Lustenhouwer‍

Transcript

(note: Transcript is autogenerated)

Anil Stocker

Hi, Bas. Nice to have you on the show. I'm really fortunate to be sitting here today with Bas Lustenhouwer who is the CFO of a B2B marketplace called Nivoda. Bas, why don't you give us a quick snapshot of what's Nivoda, where you are today. Give us a snapshot of the company.

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Bas Lustenhouwer

Yeah. Thanks, Anil. And, great for being on the show. Thanks for having me. I always like saying that. ‘Thanks for having me’ is one of those. One of those things, but, yeah. So Nivoda is the largest B2B marketplace in the jewelry industry.

We are currently selling into 60 different countries being supplied by probably 15 different countries and selling run rate about $250 million worth of diamonds and jewelry globally, and growing currently about 80% year on year.

We have about 5000 retailer customers, and about 1500 suppliers. So, yeah, trying to dominate the world of, of jewelry, basically.

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Anil Stocker

Amazing. And definitely in our experience, Nivoda has really been one of the B2B marketplaces that has truly scaled and is scaling and is high growth, which is why it's so exciting to be talking to you today. But let's wind back to, I guess, the founding story. Why was Nivoda founded? How did you get involved in this story?

And what was the sort of, I guess the, yeah, the unique selling point for those early suppliers of diamonds and buyers of diamonds.

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Bas Lustenhouwer

So, the two founders of this business, Andre and David, they met each other at Entrepreneur First and Entrepreneur First is a startup incubation programs where people with business ideas and people with a tech background meet each other and they've, has or had before he, he joined entrepreneur first more than 15 years of experience in the jewelry industry. He basically worked his entire adult life in diamonds and jewelry and, the thing that he did before founding Nivoda was he was running, together with Nick, his co-founder, at Taylor and Heart which is an online jeweler focused on bridal jewelry, So engagement rings and wedding bands. And when Dave was running that business, he realised that the supply chain for diamonds and jewelry was extremely complicated. And it was very costly, actually, for industry participants to be able to trade.

And he has this beautiful anecdote where he talks about his diamond buyer being off sick for the day, and he actually had to do the procurement himself. And that's really the moment where he realized this is really painful and we need to solve this. Why is there not a single place where you can add to cart and checkout? And it didn't exist, so he decided to build it.

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Anil Stocker

Wow. And I think there's some particularities around the diamond industry, on the supply side, isn't it?

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Bas Lustenhouwer

Sort of that so, a lot of these diamonds go to India to get polished. So whereas retailers can be, I guess, global or the end, you know, the end buyers, the diamonds, what can you what what are some of the dynamics on the supply side. Yeah. It's interesting when you talk about diamonds people often bring up South Africa or southern African countries like Botswana for example. Don't they all come from Africa, not from India? And what a lot of people don't know is that they're is a city in India called Surat, where the majority of the economy of that city is actually focused around diamonds and jewelry. And for a long time, actually, in the early 2000, Surat was the fastest growing city in terms of GDP per capita in the world, powered by the diamond industry. And currently 92% of all diamonds in the world are polished in Surat in India.

And so what happens is you've got, of course, the mines all around the world and indeed the South of Africa is where a lot of these mines are located, which is why people have that association. Of course, De Beers being the most famous name in the industry, which is a large mining company.

Nowadays you also have labs where background diamonds are being grown inside a machine. Those are mostly located in places like China, the United States and India. And then all of that rough diamond, whether that be lab or natural mined diamonds are mostly auctioned off in places like Antwerp and Dubai. Also very famous in the diamond industry, of course, those two cities. And then the majority of that rough makes its way to India, to Surat, where the polishing takes place. And that's of course, why Nivoda has a large operation in India as well, because once it's polished, that's where we come into play.

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Anil Stocker

Okay, great. So you're getting the supply of the diamonds from India and elsewhere and then you're connecting the supply to buyers in Europe and the US and elsewhere, a truly global supply chain.

And I'm sure there's quite a lot of complexity there, as well. So the classic marketplace problem is getting to scale. And, you know, the early years can be very, very difficult. How do you convince buyers to come? How do you convince suppliers to put stock in inventory onto the marketplace? So what were the inflection points? Were there like one or two moments where you felt, okay, this is we've had a bit of a breakthrough, either on the buy-side or the supply-side, to get that traction.

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Bas Lustenhouwer

Yeah. I think what's interesting is that a lot of marketplaces, whether that's B2B or B2C, have this chicken and egg situation between supply and demand. And I always use

Uber because it's a simple example where if you are trying to get a taxi and you have a lot of users of that Uber app, but there are no taxis around, you'll quickly be disappointed and you'll stop using the app.

If you are a driver of Uber and you're hardly getting any business, you're not getting any customers. You'll stop using the app and find a different way to make money. So Uber had to grow supply and demand in conjunction, kind of growing them in parallel to make sure that there was always this balance between supply and demand within the marketplace and, and in some places that were really successful and in other places, perhaps they weren't.

We never really had that chicken and egg situation. And the reason why is what we did as a strategy in the very beginning is that we said, look, we don't ask for exclusivity, and we make the hurdle for suppliers to join the platform as low as possible. So we don't charge anything on the supply-side. We make it free. We would send our engineers to their offices to set up the integration and help their IT team to build that integration. Another thing that we did is that everyone holds their inventory in different ways, different formats, different software. And rather than saying this is the format that you need to use to upload to Nivoda, we kind of mapped all of their individual setups to the Nivoda platform, really reducing that hurdle to uploads on the platform.

And in fact, when we only had one test customer and our minimum viable product wasn't even live yet, we already had about five to six hundred-thousand diamonds on the site. And we believe that at that moment in time there was about a third of the entire global supply of B2B diamonds. So, we were able to, even before we went live, already had a huge amount of supply.

And of course, if you want, I can tell you more about how we created that traction on the buy-side, but sort of that, that moment where the flywheel kept going with, with, with supply and demand, we never really had that, that chicken and egg situation which was great for us.

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Anil Stocker

Yes please elaborate on the buy-side. It sounds like you, you really wanted to secure the supply, make it super, super easy for suppliers to list inventory on Nivoda. How did you start on the demand side?

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Bas Lustenhouwer

Yeah. So on the demand-side, I think what's really important for, for any, any business really, is that you really solve a problem, right? That exists.

And I think to make that a bit more concrete, what's really important is that you take away cost from the value chain, that you actually improve the margins of industry participants. And the way that we did that is despite the fact that we are a marketplace that is in between. We were able to charge a percentage or a fee, if you will, and it was still cheaper to buy through Nivoda than it is to buy directly.

Same as and sorry I have to get back to Uber as well. Like it's now cheaper in Amsterdam to get a taxi from the airport to the center using an Uber than it was before with a normal taxi, despite the fact that Uber charges a commission. So you're really making the whole industry work in a more efficient way with regards to less idle time with us, that is, consolidating shipments and making it more efficient to send goods around the world, consolidating payments.

So we were taking real costs away from the industry. We were still able to charge a commission or a fee to our customers and still it was always cheaper. And we even guaranteed that to, you know, the first customers. We always said, look, guys, here's a calculation. Show us a few stones that you've bought recently and we'll show you guys how you could have bought it through Nivoda and actually saved a lot of direct cost, let alone the hassle of actually doing all this business, which is more an indirect cost.

So creating real value, taking away costs from the value chain is how we were able to get that traction, in the very beginning. And what we were therefore able to do was especially, in the UK in our launch markets, really quickly get some really large online retailers on the platform already in the first year of us being live and create that initial traction that we needed to get going.

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Anil Stocker

Here at Kriya we like to talk about removing friction and making, you know, things frictionless. So, it sounds like you, your pitch was we're going to remove a lot of friction for you, Mr. Buyer of diamonds by sort of consolidating the service entirely and delivering a slick service. So I guess now, you're at a scaled state. What are the sort of pillars or USPs that you're marketing to your buyers?

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Bas Lustenhouwer

Yeah, so I think, in the very beginning, it started out with indeed removing that friction. And I think, where marketplaces do really well is where there's a lot of fragmentation, because if you have a lot of fragmentation, there is more friction between industry participants.

And often there's also an information asymmetry problem, which is that there are a huge amount of items for sale, but not everyone has access to all the information to know how much something should really cost. And that is indeed how we started out. And I think that's still part of our USP is to cherry pick the best priced goods from anywhere in the world and with the click of a button, have it delivered to your doorstep. One parcel, one invoice. But what really changed also in our business model in recent years and what is now a huge part of our pitch to to our both buyer and supplier customers is that rather than just saying, hey, buy through Nivoda and take away this friction or these costs to make better margins, we actually become a partner in growing your top line.

We become a partner to our suppliers by having these 5000 retailer customers, which they now have access to, which gives them additional channels to actually sell into. A lot of our suppliers are now able to sell into countries that they've never sold into before, for example. And on our, buy-side customers, our retailer customers, what we've been able to do is build software to actually help them grow their top line to the consumer. Good examples of this, our Shopify plugin that allows brick and mortar stores to go omnichannel now, for example, the Nivoda showroom, which is our white label in-store solution that retailers can use to adopt a zero inventory business model and be able to showcase the world's goods to any consumer walking in. So really moving away from, not really moving away, but kind of supplementing the “hey save a lot of money, make better margins” to “let us also help you grow your top line and become a true partner, rather than just a supplier”.

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Anil Stocker

Really interesting. So building software tools that end users can, can use and adopt so that you drive their, their, their best outcomes,

Let's talk a little bit about marketplaces, payments and embedded finance. So we met Nivoda about 2 to 3 years ago, I think you were doing about $5 million of GMV a month or so. You’d scaled to a good, good size. Obviously you're many multiples bigger now. Talk us a little bit through the challenges of, how were you handling payments? What were buyers demanding in terms of payment experience? What were suppliers demanding? And how did you think about coming up with a solution?

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Bas Lustenhouwer

Yeah. No, absolutely. And so I think the first thing before I answer your question might be good to give a tiny bit of context about us being a principal in the transaction. So you often see marketplaces where the marketplace is either an agent or a principal and an agent model. Is something like Craigslist or often a trader on eBay can be an agent model as well, where the marketplace allows buyers and sellers to meet but not to transact. The transaction will take part offline, and you will directly trade with your counterparts.

We are the principal in that transaction. So what does that mean? That means that our buyers will pay us, we will pay the supplier and we also collect the goods to quality control, etc., etc. and for us that means that we are. I always say it's really simple. We take the goods from A to B and we take the money from B to A, and therefore we have a huge logistics network all around the world.

But that also means that we've got a lot of challenges that we had to overcome and issues that we have to solve within the payment flow. Right. Getting the money from B to A, and that includes things like, high banking fees, international wire fees, currency exchanges. It also means timing. It can often take a lot of time to move money around the world and definitely also liquidity

And I think what's really important to know in the diamond industry, it takes about 250 days from the moment that a diamond comes out of the mine till, well, to till the consumer has actually paid. So there's a 250 day cash conversion cycle, if you will. So that means that there's throughout that time, the need for all these industry participants to kind of finance that working capital. And if you take that against the backdrop of, a wildly fragmented space with a lot of smaller suppliers and smaller buyers, and especially since the, the 2008, 2009 sort of financial crisis, you see, the banks were actually moving away from our industry and these businesses really struggle to to kind of finance their working capital. So I think one of the biggest problems we actually have to solve for the industry is actually being able to inject liquidity into the value chain.

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Anil Stocker

I guess injecting liquidity means, you know, buyers always want to pay later. You know, they kind of want to get the diamonds off you guys sell it to the consumer, get that money in and then pay you. And I guess suppliers that have the opposite problem, you know, they have to pay further down their supply chain.

So they're probably going “Nivoda, we want to get paid immediately”. Right? So how are you balancing that in the beginning and, and how and how are we I guess doing that now. 

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Bas Lustenhouwer

Yeah. And that's why I use the words inject liquidity into the value chain. Because you're absolutely right. And you I mean, this problem obviously exists all throughout the value chain, not only with the retailers and what we did though is we started with the retailer side with our buy-side customers. And later on, if you want, we can also talk a little bit about some of the plans that we have around the supply-side of the platform. But on the buy-side, what we've been able to do, and that's of course, by partnering with Kriya, is being able to, to offer payment terms to our customers. So now when customers, come on to the website, they are able to add to cart and checkout.

And then when they checkout, they can choose between paying within three days. And so they still get sent the goods before they have to pay us, or alternatively get 30 or 60 days of payment terms. And that allows them indeed that time that they often need to retrieve the money from the consumer, or perhaps the credit card company that sometimes is also sitting on the money for a few weeks and being able to, to really make that trade.

And I mean, a lot of these small stores, you have to imagine, if someone walks into that store and says, “hey, I want to buy a $20,000 engagement ring”. For all the listeners out there, that is a little bit more than the average person spends. But, hey, there are quite a few people out there that spend quite a lot of money on on things like engagement rings and, and if you walk into a store, you say, “I want to buy a $20,000 ring” or maybe even more, and, and the shopkeeper or the retailer has to kind of pre-fund that for a lot of these small mom and pop shops, that can be a lot of money and they might not have that liquidity. And then you also don't want to say to your customer, well, yeah, we can make that ring for you. You can pick it up in a month, but can you pay the full amount now? Right. That is just not a very nice customer experience. So offering those payment terms, 30 and in some cases 60 days will give the retailer enough time to actually get the money from the consumer and then and then be able to, to pay us. There's a real need for that.

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Anil Stocker

There’s a real need for that and buyers are willing to pay, right? Pay, pay more or pay a surcharge to, to have that or and I guess you're also encouraging you want to encourage more velocity of transactions, people to come back to you. So do you think that offering this to your buyers has helped scale your GMV? Has it also helped kind of get offline volume onto Nivoda?

Because I guess in offline business, often these terms are negotiated right directly between retailers and suppliers. So was it kind of like table stakes, like you had to do this to sort of compete with the offline world or actually, have you been able to use this as a way of getting ahead of the offline world?

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Bas Lustenhouwer

A bit of both, actually, a bit of both. So, so, what we often saw is that customers would say to us, “Hey, you are indeed the best and the cheapest option out there. If I compare it to perhaps what I would pay to a local wholesaler of diamonds, you guys are maybe five, ten or even twenty percent cheaper, but I simply don't have the money to pay you upfront.”

“And with the wholesaler. I have a long standing relationship, and they give me 60 days of payment terms” so often it was indeed necessary for us to be able to, really compete with, the offline world, the other way around, as well. And I'm mentioning the example I gave earlier as well, which is that this business might not have been able to sell that $20,000 or $50,000 or in some cases, we had diamonds of hundreds of thousands of dollars that we sold on the platform.

That retailer might not even have been able to make that sale if it wasn't for the Nivoda platform and for the credit that we're able to offer. So actually, again, coming back to helping them drive more revenue by being able to complete that trade and also giving them access to, to the payment terms. 

So yeah, it's really and what might be good to add there also, Anil, is that, when we look at our cohorts and we look at our different customer segments and we look at how they perform, things that we look at are things like, the number of diamonds that we sell to a single customer on a monthly basis and how that's developing over time. We often talk about share of wallet. How much of their total purchases are they placing through the platform? Another really important metric, of course, is retention. Do we keep the customers that we have and do they come back every month? And when we look at customers that are buying on credit versus customers that are not buying on credit, on all of these metrics, the credit customers score better. So we have more share of wallet and we have higher retention with these customers.

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Anil Stocker

That's a really good point. And what's been the global kind of adoption rate of, of with the buyers on, on paying with credit. You know, that's an interesting data point, to see because I think in B2B, some B2B marketplaces, you know, the vast majority of buyers need and want to pay on credit.

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Bas Lustenhouwer

Yeah. So, we always knew that a lot of our customers wanted this, but we were still sort of almost taken by surprise how fast it went. So when we actually launched the product, I think within less than a few months, maybe, maybe less than six months, we were already selling a third of our platform on credit.

I think as for today, it is about 50%. And you do see that it's still growing slightly also, because there are still a few regions where we are not offering credit, and that we've recently been rolling out more countries and will be rolling out more countries in the near future as well. So we actually expect that it will go from 50%, perhaps to 60%. And that's where we think for our business and for our industry, it will, it will kind of level out. And yeah, it really depends on the type of customer some customers might prefer and have access to bank financing, especially some of our larger customers. Some customers are very well funded businesses and they would rather use the capital that they have on their own balance sheet. And other customers have a different profile with perhaps their consumers and their own cash conversion cycles, and therefore have less need for capital, especially those businesses that run a zero inventory business model, online retailers are good examples of that. A lot of online retailers also make use of our credit offering. But yeah, different customers, different setups, different needs.

And where we think it will level out is, is that around 60% of all the sales on the platform.

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Anil Stocker

And that's a really and that's a very high number. Right. You know, getting up to 50% or 60% means, you know, there's a majority of buyers who are using this, and it's very it ties to your, your point because we've seen a lot we see a lot in the old fashioned supply chains. People get kind of stuck in relationships, right? Because they've kind of built up a track record, they're offering them credit terms, as you say. So they can't really switch to new suppliers because the new supplier is not going to give them the same credit terms. So your platform is allowing people to diversify their supply chain, get better access to, supply, start new relationships with that same PayLater functionality. So I think that's sort of a very interesting point that you made, which is you can kind of break some of these legacy relationships and augment them with cheaper supply on the same terms.

So, so, yeah. No, look, you know, from our perspective, we see the dynamic of getting to 50% or 60% of checkout that that's happening across a lot of B2B marketplaces, you know, because sometimes it can be a bit sometimes it can be higher, sometimes it can be a bit a bit lower.

It comes down to dynamics of the industry. But, it's been a really interesting journey with you guys because I, you know, since we, you know, since Kriya ad Nivoda started working together, we've also seen a lot of new buyers choose to pay with credit. So when you launch in a new market, a lot of, a lot of people want to take the PayLater option as, like the way, as the way to pay.

Let's talk a little bit about the supply-side. Are you building financial products for the suppliers? What's your plan there? Are they, are they sort of saying, you know, pay us quicker. We want to get paid now.

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Bas Lustenhouwer

Yeah. No. Absolutely. And and I think, you know, when you and I come back to that, I come back to that those words that I used earlier about injecting capital into the value chain, one way that we could have solved the liquidity needs for buyers is by going to all of our suppliers and give them an incredibly hard time and negotiate really, really hard with them and say, “you have to offer us 30 days payment terms”. Yes. And, and and actually, I think if you look at the share of wallet that we have with some of these suppliers, we may have even gotten there where we would have gotten those payment terms from those suppliers, but you wouldn't be solving a problem that exists in the value chain. You would be moving a problem from one industry participant to another industry participant. And that's not what we're about. And at Nivoda we start with the customer. That's our number one company value. And that goes on the supply-side as well as on the buy-side, because we talk about buy-side and supply-side customers to the platform.

So what we did with the supply-side at the moment is that we ask for next Friday payment terms. So that means that if we buy from them on Friday, we pay them a week later. If we buy from them on Saturday, Friday is six days later on, next Friday is 13 days later. So on average, we get ten days of payment terms from our suppliers. Why is that? That is exactly the amount of time we need for a customer. The basis within three days to move the money from A to B, and we run a working capital neutral position. So we asked the bare minimum from our suppliers to be able to facilitate that trade. But of course a lot of the suppliers have huge capital needs as well.

You have to imagine some people don't realize that some of the bigger diamonds literally take weeks to polish one single diamond. Yeah. So you're buying the rough. Often you have to pay the rough diamonds upfront. The diamonds then come to a planning facility where they're all scanned in a 3D machine, and then you've got an architect or a planner actually figuring out how to best cut the diamond to create the most value from the rough. Then it goes into production process, which can take multiple weeks. And then the average sales cycle is about two months to actually sell the diamonds. So actually the capital needs for these businesses can span over months. And we really want to solve that for the industry as well. And what's really cool is that not only the classical argument of B2B marketplaces providing capital is that “who knows these customers better than the marketplace, right?” And that is of course true for us as well.

But what's also really cool is that you kind of have this natural collateral in the actual business itself, because if a supplier is very much relying on you to help generate a lot of demand and has got all these recurring sales, then of course you've got that recurring cash flow also to service that debt. So one of the things that we are looking at is to actually kind of do forward financing for all the stuff that is being sold on the platform.

And another thing that we are currently doing is that we've launched a product called Nivoda Express, where we take the goods from suppliers, take it out of their safe in perhaps Mumbai or Surat, move it to places like New York. So you are much closer to the end market, which will allow us to do same day delivery. And then those stones are still owned by the supplier just consigned to us, which of course is collateral for potential debt as well. So now that we fully launched the product on the buy-side, from next year on, we'll also be looking at opportunities to actually provide capital, on the supply-side of our platform as well.

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Anil Stocker

Yeah. Super interesting because and, you know, we're totally aligned. We're trying to build more products for buyers, for merchants, for the marketplaces, for the suppliers, because as you say, throughout the supply chain, they all have their own needs and their own problems. So, it can be a triple win, you know, for marketplace, for buyers and for suppliers by introducing these, these, these solutions,

And I think it's a journey. Right. It's as you kind of get more traction. The data that you build is also super valuable. Right. And one of the things that we're trying to do also at Kriya is leverage some of the data that platforms have, because it's kind of non what's called some nontraditional sort of data. It's often not been available in a structured way, that transaction data. And it really augments more traditional credit data that we would look at, and as marketplaces become more prevalent and get more scale, that's a very valuable source of real time data. And, and that can augment sort of models, credit models, as well.

I mean, it's been a great pleasure to work with you guys, on the sort of pay later and payment options for buyers over the last few years. Long may it continue. Tell us a little bit about the sort of corporate fundraising path that you did. Did you raise some money from VCs? Are you still in growth mode? And then we can talk a little bit about future plans.

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Bas Lustenhouwer

Absolutely, absolutely. Anil. So, we first raised money from angels, like many startups, we were lucky enough, of course, to be an Entrepreneur First company.

So they've been backing us from, from day one, Entrepreneur First, also has an amazing network of angel investors. So that helped. And then, of course, we looked at our own networks, and friends and then friends of friends and friends and friends and friends as it goes. And, we raised our money from angel investors.

We actually had in our last seed round, we had a term sheet from a VC, but we actually decided to continue with our angel investors, who also put down a competing offer. The first time we raised institutional money was two years ago. And, it was from a VC.

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Anil Stocker

That was relatively  late in your sort of I mean, you were you've been around for so long and 5 or 6 years, but you only did it recently.

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Bas Lustenhouwer

Yeah. So I think we were about four years into existence and three years into launching minimum viable product when we first raised institutional money. Before that, we had raised about $5 million in angel funds, which is, of course, a relatively large amount, from angels, but yeah, in October 2022, we closed our series A, which was led by Headline. They are a global VC firm, but they're, I think their main operations are in San Francisco as well as in, in Berlin. And then our series B, we actually, closed last year. So a year after that, led by Avenir, which is a New York based VC fund. We also have quite a few things going on right now. I can't go into too much detail, but, our track records of doing a deal every year seems to be, seem to be quite close in kind of being able to continue that, that track record. 

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Anil Stocker

So, yeah, you've turned into you've turned into fundraising machines it seems!. And why are you and why are New York VCs interested in investing in B2B marketplaces? You know, are people sort of convinced that these B2B marketplaces are going to take over the world, a bit like what happened in the consumer consumer space, you know, what do you what's the mood music there? And is it changing or is it still I mean, there was a certain moment where it was very, very popular. What are you seeing?

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Bas Lustenhouwer

Yeah. And maybe, if I may, Anil, I'll touch upon a little bit first. Like what  are the struggles or the challenges that we had to overcome to raise money, and then I'll touch also on your actual question, which is why? Why do all these institutional investors want to invest in marketplaces like Nivoda? And I think for us, I once heard a VC say to me, “I really like quirky business models”. Now I'm not a native English speaker, but I kind of understand what quirky means, and we are very much a niche kind of business. Right. And a lot of people don't realize that the wholesale jewelry trade is $200 billion per annum. And diamonds alone is about $40 billion per annum. So it is big enough to be very interesting for very large investors. But it's also quirky or niche enough for people to not really fully understand where the opportunity lies. And I think especially and that might also be a reason why it took us a bit longer to get to institutional money. It was quite hard to explain to the investor community what we are actually trying to do. If you drop a word like AI nowadays, I guess 5 or 10 years ago it was blockchain. If you drop buzzwords like that, it's a lot easier to kind of raise VC money than it is to, when you run a more quirky marketplace. And I think that Headline, and, I can't praise them enough.

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Anil Stocker

They took a bet on you?

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Bas Lustenhouwer

Well, you could explain that they took a bet. You could also say that they saw what we see, that this is a huge, huge opportunity.

And I think coming to your your actual question Anil it's really interesting if you look at B2C, of course, e-commerce, the kind of the massive e-commerce boom that already took place at ten or maybe even 20 years ago, everyone knows that picture of Jeff Bezos sitting in his garage with amazon.com written on the I mean, that's probably 20 years ago. And, of course, during the pandemic, we had a massive boom of e-commerce for various reasons. But e-commerce, B2C is, is, is becoming, the norm. And in places like, the UK or the US, which are really leaders when it comes to B2C, e-commerce, in, in some categories already 20%, 30%, 40%, sometimes even 50% of the trade is, is online. And what's interesting is that businesses, B2B, we're kind of lagging. And I think in my opinion, it took sort of a quite a while for these businesses to understand, hey, if the consumer doesn't need to see the goods when they make the purchase, do we really need to see the goods when we make the purchase? And I also think that powered by e-commerce, they then started to realize that they can run zero inventory or low inventory business models as well. I think drop-shipping is an extreme example. Of course, but you see all these businesses that realize, hey, we don't need to hold a lot of inventory to actually be able to do business. And B2B marketplaces are powering that. And, yeah, in the last few years, you really see that that hasn't been a massive trend with investors as well, that you see all these quirky, all these niche B2B marketplaces popping up everywhere, especially when there's a lot of fragmentation and a lot of players out. And of course, there's many, many industries where there's huge fragmentation and a lot of friction, Anil, to get rid of basically.

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Anil Stocker

Absolutely. And here at Kriya, we work with many, many B2B marketplaces. We're big fans. We think that they're going to do amazing things. And as you say, a quirky niche, but very big underlying volumes. You know, people often forget that B2B volume is kind of 8 to 10 times bigger than B2C. It's just that people don't see it. Right? Like a lot of these companies are not household brand names. You know, a lot of these supply chains sort of happened behind the scenes before they get to the consumer, but they're vast, and all over the world, they're vast.

And also in many of them, the friction is really high. There's a lot of manual processes. It's really a bit of a nightmare. So, there's a lot of, like, automation and difficult problems to solve as, as you guys are doing. And it's not easy, though. It's not easy. There's, a lot of, like, traditional supply chain dynamics that need to be broken or opened up and that's, that's that's very, very tricky.

And finally, I mean, you mentioned AI. Is that something that you guys are looking at? Are you using it? I mean, everyone claims to be using AI, but where do you see the kind of interesting use cases of AI in your business?

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Bas Lustenhouwer

Yeah, it's funny the first use case where we actually applied it, which so far in all honesty, is, it is really the only place where we've really applied it so far. I mean, obviously just as any other professional, I use ChatGPT from time to time to assist me with a few things, and that's great. But where we really sort of, applied it in the business and, and again, you wouldn't perhaps expect this, but this is in training our salespeople. So we've trained an AI bot to serve as a retailer customer, a very difficult one. And, the role playing that our salespeople used to do is now being taken over by an AI bot. I've actually tried it myself as well, and I'm not a salesperson, so I failed miserably obviously! But it's really, really cool.

And there's a tiny bit of a delay. So when you speak, you kind of have to wait an extra second until the AI speaks back to you. But it's really incredible. And it's really helped us train our salespeople, especially with difficult situations. Because when you cold call, people are not always, you know, too happy about you calling them. And that's been really, really cool.

I think one area where we, where we are looking into now, is, is a more typical one where I bet a lot of businesses are trying to implement AI and that is in customer support. So engaging with customers, we've we've always been and I think that's one of the main reasons why we're so successful is we've always been extremely approachable and, often our retail customers have a direct, even in some cases a WhatsApp, relationship with their customer support person. And we want to keep it that way. And, I sometimes get quite frustrated when I have to deal with a company as a consumer and I get stuck in these endless menus of press one, press two, and we never really implemented that for that reason. But with AI, there's actually a lot that you can do for customer support. For example, you have the AI already, write out the reply, but you have the customer support person. You give them the ability to approve or edit that message. And there's a lot of things that you can do to make it more efficient while maintaining that, that human relationship. So that's definitely something that we will be doing. But yeah, I mean, the possibilities of course, are of course endless.

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Anil Stocker

I like the idea of the angry AI training bot. I think I’m going to have to use that one as well!

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Bas Lustenhouwer

It's a lot of fun. If you ever want to speak with ours, I can set up a call for, you know!

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Anil Stocker

It’s been really great to chat and a lot of detail. In a nutshell, what are the future plans for Nivoda? Is it more markets? More different types of gemstones or like horizontal expansion or just more geographies?

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Bas Lustenhouwer

Yeah, all of the above. Although I think geography-wise, the only real region where we are not active yet, is China. And that's, that's a big opportunity comes with its own set of challenges, of course, but China remains, even though the economy at now perhaps is slowing down a little bit. But of course, the growth of the middle class and also luxury items such as jewelry is of course huge in China. So that's a big opportunity for us.

Another thing that we are doing is indeed rolling out other product categories. So you mentioned horizontal expansion. So it's things like we've just launched color gemstones rubies, emerald sapphires will be launching next year. Finished jewelry, we're already trialing that with a few customers. And in the end we want to sell everything that is jewelry and that a jewelry store might want to buy. So we'll even go as far as weighing scales and loops and like, tools that a jewelry store will want to use. 

But I think more importantly is, is, our service offerings. So I already touched upon Nivoda Express. We will be launching a memo service soon. So you've kind of got the scoop here Anil!

Which is that, soon will be launching, in the US, our, memo offering, which means that we will be able to do short term consignment with stores where we send goods no strings attached to stores so that, the retailers can show that to the consumer and send it back to us another way also to solve their, their working capital, problems.

And, finally, of course, I touched upon those, those software tools, and, and we'll be building those out. One of the things we want to build in the near future is a complete virtual ring builder solution inside, the white label offering that we have. So a lot of cool things are around the corner. 

And the last thing that I would mention is data. So, taking all of that industry data not only for the credit offering, but also just for, think about a supplier trying to figure out, should I cut this two carat rough diamond in half and make two one carat diamond out of it? Or shall I polish it into a two carat? If you can provide pricing data from the industry to those suppliers, of course, that would be extremely valuable. So those are things we're looking at, as well. So plenty of opportunities for us to, to grow and to provide more value to our customers.

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Anil Stocker

And very quickly, are lab grown synthetic diamonds going to take over? You know, are we going to get to a point where no one wants to buy a real diamond or, you know, what's your view?

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Bas Lustenhouwer

Yeah. I mean, first of all, lab grown diamonds are real diamonds. It's just and and, there's lab grown diamonds and there's mined diamonds, and they are both real diamonds, and both product groups have their own set of customers. Some people might choose to buy an engagement ring, a natural diamond, whereas they might choose to buy earrings using lab grown diamonds. Some might choose within their budget to buy an engagement ring, a lab grown diamond, but be able to buy a slightly bigger stone.

I think the most important thing is honesty and transparency, and I think that's where from time to time it is like in the industry. All the industry participants should be honest about the product that they are selling.

Lab grown diamonds tend to be declining in value over time, whereas natural diamonds hold their value more over time. And what we've seen is that a lot of retailers kind of, sold more lab grown diamonds with perhaps from time to time, not always explaining this well enough to the consumer. And if the consumer, then perhaps a few years later, wants to trade in their engagement ring for a different, larger ring, now that they have a bit more budget, they often found that the trade in value of that lab grown stone perhaps was, was a lot lower than they expected. So I think as long as you're honest about what you're selling, then we'll see a big market for both. 

And I always tell this funny, (well, at least I think it's funny!), anecdote where I bought my mother in law, diamond earrings, a year and a half ago for Christmas. And, those were lab grown diamonds. And by the way, transparency. I told her that labral diamonds, and I substituted away from perhaps a really nice bottle of champagne and some chocolates to lab grown diamonds.

I did not substitute away from natural diamonds, and I love my mother in law. Mary, I don't think you're listening, but I love you! And. But buying you natural diamond earrings for Christmas. It's quite an expensive gift for Christmas. Or buying lab-grown diamond earrings for Christmas is actually surprisingly affordable. And we like to believe, and we see it as a very positive trend, that it kind of expands the industry as a whole and makes diamonds more accessible for different consumer groups and different types of occasions like Christmas. And we say that, as a positive add to what the industry has to offer.

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Anil Stocker

That makes a lot of sense. You're not replacing, you're just expanding the moments where diamonds get exchanged. And so it can be seen as growing the market, not substituting the market.

All right Bas, thank you for spending so much quality time with us. It was really interesting to hear about the Nivoda journey, your story, embedded finance, fundraising and a lot more. I recently read that they discovered the biggest diamond ever or ever discovered or something like that in Botswana. Can't remember how many carats it was, but it was like thousands of carats. So I really hope that part or all of that diamond gets sold on Nivoda. Who knows

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Bas Lustenhouwer

I will let you know if I see a very large trade on our platform! And hopefully it's on credit!

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Anil Stocker

Yeah, exactly. Bought on credit, powered by Kriya. That would be amazing! And, it could happen. So, thanks again. Congrats for all the great progress. And we're going to stay in close touch. Thank you. 

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Bas Lustenhouwer

Sounds Good. Thanks very much Anil. 

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‍[ENDS]