The Tale of 4 Indian Unicorns- How, When & Why?
A company is nothing short of a child for its founder, the investor looks at it as just another entity to churn money. It never works out. The confidence is lost.
Paytm: No more Bhartiya?
Lead investor in Paytm, Alibaba, bought a marginal stake held by Reliance Capital for $41 million (Rs. 275 crore). While the deal has meant a 27-fold return for the Anil Ambani-led firm, it has lifted the valuation of One97 Communications, the parent company of Paytm, to an estimated $5 billion at a time when the e-commerce universe is facing severe markdowns.
The Indian Unicorn founded by Vijay Shekhar Sharma has been one of the top listed fintech companies of the time. In the past few months it has managed to raise multiple rounds of funds – the most recent one being a whopping amount of $177 million and $23 million from Alibaba and SAIF Partners into Paytm Mall (its e-commerce arm like T-mall owned by Alibaba in China), making it stand at a total of $200M. Alibaba Group, now holds 62% stake in Paytm and plans to enter the Indian e-commerce marketplace in full-swing by Diwali 2017. Since China’s top e-commerce player Alibaba has managed to acquire majority stakes in Paytm; it no longer belongs to the Indian soil. Though Paytm has plans to open a payment bank too by the end of this month; it can be seen as one of the biggest footsteps of the Chinese player in India.
Flipkart: Feel Sorry for the Founders?
India’s top listed e-commerce firm Flipkart has reportedly been in talks to raise more than $1-1.5 billion, aiming to make profit since a very long time but the deal hasn’t been sealed yet. What is topping it from raising funds? Has the copy-cat model reached a saturation point in terms of ideas, innovation and operations?
Ever since the founders Sachin and Binny Bansal have been ousted from the daily operations of the firm and the investor led game has been taken forward by the CEO Kalyan Krishnamurthy (Jan 2017). Country’s first e-commerce unicorn has succumbed in the discount battle while rivals such as Snapdeal have accumulated huge losses.
The story is straight and open: Investors put a lot of money into a firm, they come with a pre-conceived mindset. An investor should never run a company. A company is nothing short of a child for its founder, the investor looks at it as just another entity to churn money. It never works out. The confidence is lost.
It’s a worrisome fact, however, is that most startups are funded. With every round of funding, the stake held by the founders and the founding team goes down – sometimes leaving them with just a single-digit share while investors possess the majority. For instance, Tiger Global is the single-largest shareholder in Flipkart – with 30% to 33% of the company. It has pumped about $1 billion into the venture.
Though Sachin Bansal tries to lobby against “capital dumping” and for regulations against foreign players like Amazon and Alibaba; the truth is he himself might have lost a battle to conquer India’s e-commerce market space. Will a troubled Flipkart be able to stand against Amazon and Alibaba’s war chests?
Snapdeal: From Bad to Worse
As per several media reports Snapdeal has not been able to clear its dues towards a group of merchants since the past 8 months. The reasons for the same by the online marketplace include sale of fake products to penalties on returned orders and incorrect charges for packaging and logistics etc. Even as town halls have started at Gurgaon-based Snapdeal to soothe anxious employees, over 2,000 employees out of over 4300 have been estimated to be impacted by the company's retrenchment exercise this year.
The SoftBank-funded e-commerce firm’s doom story doesn’t end here. More layoffs could be around the corner in subsidiaries such as FreeCharge. Snapdeal, has pushed itself into a corner of late with poor sales and not to mention, lack of funding. Top-level exits too have plagued its name too.
According to analysts, the current position of Snapdeal marks an important juncture for the overall e-commerce industry which relies heavily on funds from venture capital firms. Snapdeal is being widely criticised for the lack of focus on profits, extravagant spending on advertising and rebranding, and over-hiring.
Shopclues: Whatever Happened and Why It happened?
While Shopclues earned a revenue of Rs178 crore in FY-2016; it clocked a bigger loss of almost Rs383 crore in the same year. The internet marketplace ShopClues has been deferring its plans for a public listing of its shares from quite some time now. Earlier it blamed the government's demonetization decision for it now it must be the recent controversy the co-founders have found themselves into over Facebook posts and judicial cases.
It is now targeting the first quarter of 2018 as a realistic timeline for the IPO and will seek to raise funds meanwhile.
Last year, Shopclues had said its valuation was over USD 1.1 billion after it raised an undisclosed amount of funding led by Singapore's sovereign wealth fund GIC. The company on March 17th, launched 'Shopclues Surety Program' to ensure that products on its platform undergo an extensive five-point quality check. It remains to be seen if Shopclues puts itself on the path of revival or not through efforts like these.
Conclusion: Flush with investor money in the beginning of 2015, e-commerce companies expanded their operations aggressively across the country in the last 2-3 years. They spent a huge portion of these funds on marketing and customer acquisition activities. While funding is drying up, there is also an increased pressure now from investors to rake in profits.
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