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Will Khatabook Uncover Bharat’s Elusive Fortune?


Last fortnight, Khatabook closed a $60MM round, on the tailwinds of accelerated digitization due to everyone hunkering down in their homes. 

Papa, Main Hoon Na

Family businesses have been the embodiment of India’s entrepreneurial spirit for decades. 

One such family business was an electrical shop in Nanded, Maharashtra. Vaibhav Kalpe saw his father struggling to keep track of pending receivables of customers and decided to do something about it.

His father would maintain a paper ledger, know colloquially as “bahi khata” (बही-खाता)

This book to maintain the khata, a hindi term for Ledger, was extensively used by traditional business owners in India to keep a track of all transactions for their business. 

This small register, generally purchased for a year starting diwali, was a day to day cash transaction journal. It was laborious, risky and inefficient way of managing accounts and often led to poor credit collection.

But in 2016, a digital transformation was underway that got Vaibhav thinking.

More interenet users are not in cities

Cheap data by Jio coupled with smartphone penetration, could enable the digital transformation of traditional bookkeeping. This provided an opportunity to build solutions for small businesses, like Vaibhav’s family’s, spread across 5000+ cities in India. 

To get the right technical knowledge, Vaibhav took up an online course and learnt app development. He took feedback from his father and iterated to solve for the pain point as well as design an interface which was easy enough for his father.

On 26th October 2016, he released this app on Playstore, largely trying to solve his father’s khata problems. Scale and building for India was perhaps a secondary goal, as Vaibhav was set to work with the family business. 

Reminiscent of a self taught son building to solve his father’s accounting problem technically, Khatabook was born like Tally

Around the same time when Vaibhav was trying to find a solution for his father’s problem, there was an entrepreneur whose primary goal to scale had not played out quite as he expected. 

Har Ke Jeetne Waala Baazigar

Ravish Naresh’s first startup was the poster boy of India’s nascent, exploding startup ecosystem.

Having raised $150MM in an unprecedented two years, was the hottest star to rise out of the Silicon Valley styled Powai Valley. But as Ravish saw rapid scale, guiding Housing as a COO, by 2016 had all but collapsed. 

In what he would later describe as a “$150Mn crash course on doing a startup”, the company he founded with 12 of his college mates went on a turmoil. Burnt, but wiser, Ravish decided to take a break before leveraging this crash course to start

He wanted to build, but build right. 

By late 2016, Ravish identified the problem on how SMS inboxes were getting spammed and decided to solve this using technology, to build an intelligent SMS inbox. The idea was to leverage it as a tool, not only to filter spam but also to help users manage their spends and understand their expense patterns using SMS alerts.

By 2017, he raised the first round of funding and legally incorporated Kyte. Soon, a talented team, majority of whom were from his college, joined hands and Ravish was ready to scale.

However, there was a problem.

Kyte had initial traction and user reviews, but the team realised that something was amiss. Their intelligent SMS inbox did not reach the expected growth rate. 

As they dug deeper they realized, Jio was leading to growth of users in smaller cities where people transacted in cash. Such a digital solution may not be relevant, which worked better on online transactions data.

The opposite of Jio’s effect on Khatabook was happening to Kyte. 

Ravish knew there was a bigger opportunity somewhere else and they should build something people want. Once a product market fit would be established they could try to build a business model around it.

Ravish had found the market, but not the killer product. 

Market Mein Kuch Kuch Hota Hai

In Oct 2018, Ravish was researching how he could build a product market fit. 

He read up on cash transactions. smaller town habits and other digital solutions when he came across an app called Khatabook, which had 60K downloads. 

Interestingly, it was not built by any company but an individual. Ravish was curious. 

While the app had no backend and very basic front end, it was built with first principles thinking. It clearly had product market fit, and was impressive enough for him to spot the opportunity.

Ravish was quick to reach out to the developer of Khatabook, or as we know, the son who had built it for his father. 

Vaibhav, by then, was about to get married and settle down. He only had plans to run the shop as his father was retiring. As he was about to take over his shop, he got Ravish’s email.

Vaibhav was not too keen on sharing his number or taking the discussion further with a random person he had met online. He had already been pursued by investors. Ravish insisted on having a chat and convinced Vaibhav to meet him in Mumbai.

Ravish’s Kyte had found the lock and Vaibhav’s Khatabook was the key. 

Ravish and Vaibhav decided to join hands. Vaibhav was soon on his way to Mumbai to work as a core team member.

Kyte decided it was time for a pivot, and the team rebuilt the Khatabook app from scratch and relaunched it on Playstore. 

Khatabook’s first hand understanding of the market combined with a talented team at Kyte would be magic. The new Khatabook’s explosive growth happened because they provided the right solution for a unique problem Indian SMEs faced.

Indian businesses for decades have run in a way which is unstructured and manual in nature. There is a chaotic way of managing business evident from shop design to cash management. 

Ours is a cash economy because of trust. Most of the sales happen based on relationships. They know the customers and their preferences through years of interactions and subtle indicators from past purchases.

In a city like Chhindwara,  a mother will ask her kid to go to nearby Guptaji’s Kirana store and ask for a toothpaste. Gupta ji, will give the right brand without any CRM’s help (yeah, really). That’s how they have built business over years.

The process of cash and relationship,  when combined led to a very natural process. That process is called extending credit which fuels Indian businesses.

Khatabook would help manage this fuel, better.

Kabhi Khushie, Bahut Gham

The origins of the book of accounts, bahi khata, were an outcome of the natural process of extending credit.

It was a common practice to start a small account for each customer who transact with a business regularly and settle the transactions cumulatively. Extending such credit, while risky, was a growth lever. It had become a norm and customers considered it completely normal to ask for it.

As the customer base increased, keeping track of entries and bookkeeping activity became difficult for business owners. Other challenges like loss of ledger if the physical book is damaged or missing on a follow up to collect credit from a customer, led to losses.

This was a pain point that was felt by every business owner. They were neither tech savvy nor big enough to use any existing CRM tool.

Vaibhav’s father had problems that other Kiranas had

As mobile penetration increased and business owners started using smartphones, there was an opportunity to build a solution to ease the painful bookkeeping work as well as a better way of collecting cash from customers.

Khatabook’s intuitive UI resonated with SMEs in the language of their choice, navigation they can understand and ease of handling which was way better than their traditional physical bookkeeping practice.

True PMF was established and the Khatabook app started growing organically. 

By 2018, Jiofication had expedited the trend of smartphone adoption by Indian households in Tier II and Tier III cities. Coupled with abysmally low data costs, Indian MSME sector was at an inflection point, waiting to be disrupted.

KhataBook stepped in to address the latent demand of digitising these transactions, utilising digitisation tailwinds to facilitate widespread adoption of its product. So far, digital ledger accounting for the 12MM local mom & pop kirana shops in India (driving 90% of India’s FMCG sales), was an untapped sector. 

KhataBook became the first formal B2B SaaS product they had used in their entire life.

Chak De India!

Before being launched formally, KhataBook had already garnered 40K merchants on the platform. 

Soon after its launch in December 2018, KhataBook went viral. Shopkeepers and roadside vendors had already been using internet-enabled smartphones for OTT content consumption. All they needed was a simple-to-use app to use it for business.

Khatabook growth details
Khatabook’s explosive growth (credits Ravish Naresh)

KhataBook recorded $3 Bn worth of transactions on its ledger platform within six months. On the back of strong traction and an established product market fit, KhataBook raised $25 MM.

In the Indian market with more than 60MM small and medium-sized businesses, KhataBook had stepped in to streamline ledger accounting.

Word of mouth has been the strongest driver of adoption of KhataBook, bringing classic network effects into play. 

This customer acquisition strategy worked because shopkeepers are more likely to believe other shopkeepers about the savings and revenue benefits of Khatabook. All the unpaid credit balances sitting in a physical notebook now came to life in KhataBook’s app. 

By sending reminders on Whatsapp and through SMS when it’s time for the merchant to collect due payments, KhataBook helped store owners recover half of their receivables in 2019 within weeks of onboarding them. These had been traditionally done through writing in notebooks.

By February 2020, Khatabook had taken a lead over its competitors, nearing 1.1MM DAUs (Daily Active Users), over $1Bn in transactions, 1 MM+ downloads  and 400K businesses on-board. 

The upstart was solidly placed on its growth track, growing 20% every week, in line to add 25 MM new businesses to its platform in the next 1 year.

But as the rocketship took off, all of its users were paying exactly zero.

Dil Hai Hindustani Par Paise Nahi Hai

CK Prahlad in his seminal work two decades ago talked about finding a fortune at the bottom of the pyramid. 

Over those two decades, Indian incomes had grown across tiers, but the lower part of the pyramid still seemed difficult to crack. The reason, of course, was the lower monetary flow.

With more than 10MM businesses in over 10,000 cities, Khatabook had made a significant dent in the 70 MM strong small business sector in India. 

However, the app was free to use, and competition was intensifying.

Khatabook’s closest competitors included OkCredit, which had raised $84Mn till date. Vyapar, was backed by IndiaMart and had already plunged early into monetization, and deeper into ledger management, thus seen lesser growth due to a mixed approach.

The company also saw strong competition from existing upstarts like Cleartax, and the accounting legend Tally. In late 2019, Instamojo took on the segment, followed by Paytm, focusing on cross-adoption, noticing khata apps’ explosive growth. 

A big market also calls for big competition

While the volume in the sector was large, monetization continued to be a challenge. This was especially true for a product that no store owner had ever used.

The fact that the product was new constrained it from being paid for.

Most business owners in India do not value technology, primarily because the substitute labour is cheap or not accounted for. Their families usually work in the shops, and none of their costs are accounted for, unlike formalized organizations.

When you could pay your brother zero to manage your books, why would you pay Khatabook anything, the kirana store keeper would think.

Coupling these with lower incomes and small scale, the leverage provided by technology was largely not even a consideration for store owners. 

Khatabook would have to find different ways to monetize, but before that it wanted to conquer the playground. 

VC Babu Desi Execution

In its quest for dominance, Khatabook was following a tried and tested venture funded playbook.

Build a great product. Make it free. Acquire millions of users. Win the market. Monetize. This high risk high return strategy reaped incredible benefits for Facebook, Google, and is still work in progress closer home at Paytm. 

In early 2020, Khatabook therefore remained focused on having a fantastic product. 

The simple design and user experience continued a big hit with merchants from small towns and cities who had limited internet connectivity and a very basic understanding of technology. 

The user interface was minimal, basic and talks in the language of its core user-base. It offered support in multiple regional languages as well as Hinglish. 

But although the app was simple, it was packed with many useful features. Each of these was clearly solving a pain point, as the Khatabook team would cleverly use for recruitment.

It allowed merchants to add customers and edit and update all the customer information, allowing detailed tracking. Merchants were allowed to add transactions made by a customer, edit older transactions and delete transactions as well, maintaining “hisab kitab”. 

The app integrated with the phonebook to allow calling customers directly from the app. Whatsapp and SMS integration allowed merchants to send their customers reminders about payments to increase their udhar recovery. 

It also allowed for multiple users to share the same khatabook account, a feature commonly used for many family-owned businesses. The app also provides for automatic backup and restore of the data. 

KhataBook’s simple design made its product adoption possible across all geographies in India, helping over 5MM merchants from 3000 cities, towns and villages cumulatively save 3Bn hours in a year. 

It even had merchants from Andaman and Nicobar Islands on its platform. Outside India, KhataBook had customers from countries such as Bangladesh, Pakistan, Nepal and from the Middle East, accounting for 10% of the user base. All this user adoption had been entirely without any marketing spend.

The rich feature set was a clear segue to monetization.

Khatabook would therefore plan to develop financial assistance services such as inventory management, billing and invoicing and GST calculation. This entire suite of services would allow it to start monetizing.

But there was a major hiccup incoming.

App ko Kabhi Alvida Na Kehna

The pandemic in March 2020 shocked the world economy, and the Indian economy was hit worse.

Small business owners, who majorly ran physical stores, were hurt badly. With zero physical footfall due to the lockdown, Khatabook’s core group of customers suffered.

As the pandemic hit businesses hard, Khatabook’s DAUs collapsed by 50%. Late March and all of April was absolute carnage.

Khatabook had flown high very fast, and reminiscent of the Housing days, its wings seemed to have gotten too close to the sun. This time, though, the wings were not made of wax.

A compelling and easy to use product saw the necessary digitization only accelerating its usage. By mid May, as the country started opening up, it had seen a recovery of ~90% across categories, to pre-covid levels.

While Khatabook’s focus had remained on growth, its resilience began to surface its qualities as a strong backbone for supply chain endpoints. 

Over the past few decades, FMCG behemoths had built a robust supply chain all across India. Khatabook’s users in tier 2/3 areas began to show that it had built an exceptional channel of distribution, with millions of merchants actively using the application to serve the ‘bottom of the pyramid’. 

In what could be yet another strong case study of ‘Data is the new oil’, the udhaar khata app could potentially build the strongest network of 35Mn+ MSMEs in tier 2,3 areas of India.

Imagine a product being available right within 5kms, and getting delivered on the same day – all through periodic notification cycles to the merchants on Khatabook. 

Fulfillment at scale, improved customer experience would bolster the lesser addressed markets’ activity and thus could give birth to a new set of products. Low margin, high volume with profitability thrived by economies of scale.

Or, the fortune at the bottom of the pyramid.

The access to merchants could potentially unlock access to inventory and non-internet users. While video commerce platforms like Bulbul, Simsim continue to focus on the vernacular market in India, Khatabook’s platform could help reach the ‘source’ leading to smoother supply chain, reduction in logistics costs, and thus smaller credit cycles. 

Khatabook is quietly building the closest model of consumer behavior data by knowing the purchase patterns, ticket sizes, and demand of the Next Billion Users. 

Paise ka Josh

They say, those who sit on the flow of money, or data, could make a fortune.

Khatabook, by being the go to choice for recording transactions for kirana stores, is sitting on a massive flow of transactions. As Jio, Amazon, Flipkart and countless other tech companies make the kirana store the next hottest property, Khatabook is already their gatekeeper. 

Inspired by the venerable gatekeepers Amazon, Google, Flipkart, Swiggy, Khatabook has multiple ways to make money.

Khatabook could enable the digitisation, and monetization for payments. 

This still remains at a paltry 15% due to cash dominating in these transactions. Over 40% of India is still to get mobile Internet. 

Unlocking Banking 2.0 with Aadhar based systems or UPI could drive the markets to eventually spend digitally as trust builds at scale. With reduced friction in transactions could come an entire new opportunity for retail markets.

Khatabook has already processed over 50 Bn transactions on their platform. Commissions deducted from every transaction made between customers and shopkeepers could be a promising source of revenue.

If charging a fee does not impact user behavior the estimated potential revenue is Rs. 7.5Bn ($100MM) to Rs. 15Bn. ($200MM). This is assuming an average transaction size of Rs. 100 to 200, a fee of 0.5% and 30 that billion transactions will take place on that app per year.

Khatabook also has the potential to extend credit to a credit hungry segment. 

They can directly compete with banks like the British unicorn Iwoca that has won a 12% market share of all the new business overdrafts. Iwoca is in 4th place ahead of giants like HSBC and Santander. But it was no easy feat, Iwoca has been laser focused on providing short term loans only to the SME sector and it has taken them about 10 years to get here.

India, though, is a different beast, history tells us that business models from the west cannot always be replicated in the Indian market.

Few companies have managed to scale to serve the lucrative, but tough to crack, kirana store/SMB market. Khatabook’s scale puts it in good stead, and the opportunities look promising. 

As Khatabook looks for the elusive fortune in Bharat, it sits on the vantage point.

Written by: Abhinav, Abhinay, Aviral, Mazin, Raghav and Raj

Audio Version: Behind the Scenes with AJVC

On request from the community for an audio version, we have done a behind the scenes format with the writers and host Mazin

Tune in below:

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Debayan Ghosh Dastidar
Debayan Ghosh Dastidar
3 years ago

As usual brilliant explanation. May be JioMart will become a competitor in coming years as they may provide entire suite of services. But Khatabook has first mover advantage.

3 years ago

Nice read.
So basically Khatabook has been unable to earn anything out of its huge user base.

Can I ask how you guys at A Junior VC are thinking to get monetised?

“Build a great product. Make it free. Acquire millions of users. Win the market. Monetize.”
Like this? 🙂

3 years ago
Reply to  Aviral

This is at par or actually better than The Ken! So yeah – I would pay!

3 years ago

Just a small observation, its advertisement has been on Lallantop consistently which has 1.4cr subscribers on youtube & whose viewers are mostly from tier 2/3 cities.

Karthik Vijay Gopal
Karthik Vijay Gopal
3 years ago

“Built a great product. Made it free. Acquired millions of users. Won the market”. Please don’t Monetize.( I would pay, though)

Deepu Kumar Raigar
Deepu Kumar Raigar
3 years ago

I am interested

shubham Kumar
shubham Kumar
3 years ago

Excellent blog! Loved it! Couple of questions:

  1. As you mentioned in the article, there are a lot of big players competing in the market, what steps has Khatabook taken to ensure they don’t lose to big players?
  2. Can you provide some insights/data with respect to the competitors’ and Khatabooks’ market share as to how they have flared over the years?

Thank you in advance!! 🙂

Abhinav Jindal
Abhinav Jindal
3 years ago

This app has stark similarities to Splitwise. The other one though focuses on P2P khatas but can come up as a good competitor 🙂


[…] Will Khatabook Uncover Bharat’s Elusive Fortune? […]

Rahil Sinha
Rahil Sinha
3 years ago

Khatabook is not monetized yet. How does they earn right now then?

P.S – Excuse me if this might be a silly question.


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