Why VCs are investing in Flipkart?
Flipkart, India’s largest e-commerce marketplace, has raised $700 million in fresh investment from existing as well as new investors Baillie Gifford, Greenoaks Capital, Steadview Capital, T Rowe Price Associates and Qatar Investment Authority.
The e-commerce powerhouse, which is on a fund-raising spree, has raised funding for the third time in 2014. In May, it had raised $210 million (about Rs 1,200 crore). It had raised funding worth $1 billion (about Rs 6,000) in July.
Why VCs are investing in Flipkart, though they are in loss? Any professional investor or venture capitalist would invest only for returns, no one would have long term plans or goals with any company. However, ultimately VCs care and love to know about only three things.
How much equity will I get? what is the return on my investment? and what is the exit strategy?
They don’t bother about the product and improvements, apparently they bother about how the product is performing in the market.
If you could have invested in Google in 1998 you would have been a billionaire by today, the same can be applied to any big company. yes of course FlipKart, Ola and many more incurring lose years together but the other side of the story is they are growing fast and grabbing majority of the market share by pumping lot of funds in deals and offers.
The latest round of fund-raising has seen investment from existing stakeholders DST Global, GIC, ICONIQ Capital and Tiger Global. According to reports, the latest fund-raising has pegged Flipkart’s valuation at $11 billion. Flipkart’s rival Snapdeal had received $627 million from Japan’s SoftBank in October.
“As with previous funds raised, these funds will be used towards long-term strategic investments in India and to build a world-class technology company, delivering superior customer experiences,” the company said in a statement.
According to the statement, Flipkart Ltd (incorporated in Singapore) has filed with the ACRA Singapore for conversion to a public company, which is a mandatory procedure for all companies where the number of shareholders exceeds 50.
Earlier, Flipkart was expected to begin the new year with another round of funding, perhaps crossing the $1-billion figure. Flipkart’s previous round of fund-raising had come in July. At that time, co-founders Sachin Bansal and Binny Bansal had made a public announcement at a Bengaluru hotel, about a $1-billion fund raising, the largest so far in the Indian e-commerce sector. A day later, Amazon had issued a statement that it was investing $2 billion in India.
2014 has been a year of blockbuster funding for e-commerce companies, a $4-billion market. Beside Flipkart’s $1-billion funding in July, Snapdeal had raised $627 million from Japanese investor SoftBank in October.
Since no e-commerce company in the country is listed, they hardly ever publicised their fund raising till recently. While talk of mega bucks being raised from foreign investors brought e-commerce in the bracket of big league, it also meant a fair share of controversy to the players. Among other things, the foreign investment going into these companies has been under scrutiny.
Foreign investment is not permitted in e-commerce but there’s no rule barring it in a marketplace model. Most e-commerce entities in India are operating the marketplace model. Tax issues have also been raised in some states for hosting traders and keeping their inventory in some cases.