Flipkart: Billion-dollar Baby

30 Jul,2014

 

By Radhika P Nair & Harsimran Julka

 

What could be the next goal for two entrepreneurs who have just raised $1 billion in a single round of funding? Sachin Bansal and Binny Bansal, who have done just that, have set their sights on making their company a $100-billion entity by valuation in the next few years from $7 billion now.

 

 

Flipkart raises $1 billion in funds, company may be valued at $7 billion

 

Flipkart has raised the biggest round of funding by an Indian Internet firm, setting the stage for a battle with Amazon for supremacy of the Indian online retail market. Singapore’s sovereign wealth fund GIC became the latest investor to put its faith in India’s largest online retailer by participating in the $1-billion (.`6,000 crore) funding round that values Flipkart at $7 billion.

 

The Economic Times was the first to report that the Bangalore firm had snagged the massive round of funding. “We were a little kid waiting to grow up. Now we have grown up with this funding,” said Sachin Bansal, the co-founder & CEO. If Flipkart were listed in India, it would count among the 50 most valuable firms with twice the market value of Colgate, which was set up here in 1937.

 

The funding was led by existing investors Tiger Global and Naspers with participation from Accel Partners, DST Global, Iconiq Capital, Morgan Stanley Investment Management and Sofina. Dragoneer and Vulcan Capital, who first invested in the company last year, did not take part in this round. The seven-year-old company has so far raised over $1.7 billion in risk capital. In May, it sucked in $210 million led by Russian billionaire Yuri Milner’s DST Global a few days after announcing its acquisition of fashion portal Myntra for an estimated $370 million.

 

Sachin, who has in the past spoken of a US listing in 2015, said an IPO is not on the cards for the next two years.

 

This funding ensures that Flipkart can now invest in building on the promise they have shown,” said Arvind Singhal, chairman of retail advisory firm Technopak. “I do not think this funding would have caught Amazon by surprise and I am sure Flipkart is not naive to now take competition lightly.” Seattle-headquartered Amazon, which just announced second-quarter loss of $126 million, has become increasingly aggressive in India. In about 13 months it has launched 28 categories of products and has grown to host 8,500 merchants on its platform. On Monday, Amazon announced the opening of five more warehouses, almost doubling its storage capacity to over half-a-million square feet.

 

The funding will mean more pressure for Delhi-based Snapdeal, which raised over $233 million from investors such as Temasek and Premji Invest earlier this year. Amazon has matched Snapdeal in terms of sales, with the two firms having sold about $600 million (over Rs 3,600 crore) worth of products each, according to multiple people who have direct knowledge of the firms’ financial details. Both could reach $1 billion in sales this fiscal. Flipkart reached this milestone last fiscal.

 

But Sachin said his focus is solely on Flipkart. “At Flipkart we are not thinking about competition. This funding gives us the opportunity to shape the market in a way that we want,” he said.

 

Binny Bansal, 31, co-founder and chief operating officer, said logistics as well as payment and mobile technologies will be the areas where Flipkart expects to spend the most. Also getting attention will be small businesses, which Flipkart will handhold and bring online.

 

Mobile has become a priority area for Flipkart, with over 50% of sales through handheld devices. So are payments, where it could look at acquiring a firm.

 

Flipkart has previously acquired for depth in product categories and for new technology. This could continue, said experts. “There could be more acquisitions to fill up adjacencies in product or capability. If someone is strong in a segment, they could become an acquisition or merger target,” said Pinakiranjan Mishra, partner and national leader (retail and consumer products) at EY.

 

Apart from tech buyouts, the company could look at acquisitions in categories such as furniture. Portals such as Pepperfry and Urban Ladder, which raised funding in the past few weeks, are seen as likely targets.

 

Flipkart’s most recent acquisition, fashion etailer Myntra, has worked out well for them so far. “Fashion is now our largest category accounting for one-third of our sales,” said Sachin. The combined entity claims to now command over 50% of the online fashion market.

 

Such strategic decisions will become more important now. “This will not make life easier for the company. They will need to show results,” said Technopak’s Singhal.

 

Source:The Economic Times

Copyright © 2014, Bennett, Coleman & Co. Ltd. All Rights Reserved

Licensed to republish

 

“We wish to be the first $100 billion internet company from India. Globally there are only five; three from US and two from China. This funding gears us up to achieve that,” said Sachin Bansal, 32, cofounder and chief executive of seven-year-old Flipkart.

 

For the Bansals, who are not related but were classmates at IIT-Delhi, the journey has been both difficult and fulfilling. When they started out in 2007 as an online retailer of books, the duo marketed their site by personally distributing branded bookmarks outside Bangalore’s iconic Gangarams Book Bureau. The duo had pooled in Rs 2 lakh each and with two computers launched the site from their two-bedroom apartment in Koramangala, a primarily residential locality in Bangalore where the company now has multiple offices.

 

The Bansals have come a long way since then. Flipkart, which raised $1 billion from a group of investors including Tiger Global, Naspers and Singapore’s GIC, is the largest online retailer in the country. It reached $1 billion in sales last fiscal and, according to sources, is on track to breach the $3 billion mark this fiscal. And Flipkart now has a marketing budget that is in the millions of dollars.

 

The ability shown by the two Bansals to scale up is what has made then a darling of the investors. When Flipkart hit the billion-dollar-sales milestone in February, its first investor Accel Partners, who invested $1 million in 2009, had called it a validation of its early bet. Subrata Mitra, partner at Accel Partners, said at the time that Sachin and Binny stand out with their ability to set audacious goals and take big risks. “They have proven to be capable to decide between “build vs buy”…and have the utmost ability to attract large investors to the table,” said Mitra.

 

The success has not changed them much. The duo, who live close to their workplace, walk to work, eat lunch with employees whenever possible and fly and stay budget while travelling. The founders have also turned angel investors backing young startups like product discovery portal Roposo and mobile news app News in Shorts.

 

The Bansals’ success will inspire other entrepreneurs, said Arvind Singhal, chairman of retail advisory Technopak. “The billion-dollar funding will inspire entrepreneurs to get into ecommerce and investors too will have the confidence to back them,” said Singhal.

 

The focus now shifts to mobile and logistics for the Bansals. “Mobile will bypass broadband in India,” said Sachin, who was wearing an Android-powered watch at the event where the fund-raising was announced.

 

Source:The Economic Times

Copyright © 2014, Bennett, Coleman & Co. Ltd. All Rights Reserved

Licensed to republish

 

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