This ecommerce site gives big discounts and still makes money. It just bagged $6m

Zefo founders (from left to right): Himesh Joshi, Rohit Ramasubramanian, Karan Gupta, and Arjit Gupta. Photo credit: Zefo.

An unboxed sofa from Urban Ladder, one of the coolest furniture portals in India, is available for INR 6,000 (US$88.5) on Zefo, an online marketplace for used or returned goods and factory seconds. That’s a 70 percent cut on its original price of INR 20,000 (US$295).

I was sorely tempted to buy it. ‘Unboxed’ means the sofa hasn’t even been used. It’s a discard because of a defect. Zefo tells me upfront that it has a minor leatherite cut at the side and an ink stain on the arm rest. Not an issue for me because I know Urban Ladder makes good furniture. Besides, Zefo guarantees a buyback for INR 4,200 (US$62). So I risk little if the leatherite cut becomes hard to contain later.

The buyback guarantee gave a big boost. We saw a 40 percent increase in conversion rate.

Many others, especially millennials, apparently have the same idea. Zefo, founded last year, says it is currently growing at 40 percent month-on-month, and selling 400-500 products a day. The Bangalore-based startup recently expanded to Mumbai and Delhi.

Today it announced series A funding of US$6 million led by Sequoia Capital India with participation from Singapore-based Beenext and existing investor Helion Ventures. The funding will go towards expansion to more cities and entry into more categories.

Currently, Zefo sells furniture and household appliances. Consumer electronics will be added soon, says Zefo co-founder Rohit Ramasubramanian.

See: Ex-Amazonian’s stealth startup gets $2m seed funding to disrupt logistics

Where Zefo stands apart

A number of factors have contributed to the fast-growing popularity of Zefo. The buyback guarantee gave a big boost, for instance. “We saw a 40 percent increase in conversion rate,” Rohit tells me. It also creates a long-term engagement with the customer who becomes both a buyer and a seller on the site.

Unlike in developed markets, the biggest inhibiting factor working against used goods marketplaces is lack of trust. There are few systems in place for quality assurance.

The unboxed sofa I was eyeing in Zefo.

Zefo tries to solve this with a fully managed operation end-to-end. It picks up the object from a seller, with payment upfront, so that it’s hassle-free. Then it goes through a quality test and refurbishing. Defects are called out transparently on the site when the object is listed. Delivery is made to the buyer just like any ecommerce site.

This is a far more controlled process and different experience from that of a pure marketplace like classifieds site Quikr which connects buyers and sellers and does little else in between. The quality assurance adds to the cost of transactions, but Rohit tells me the margins are still good enough for a sustainable business. Zefo has no intention to go the cash-burning route of better-known horizontal marketplaces. It wants to focus on user experience.

From IIT and BCG to used goods salesmen