E-commerce wars: Flipkart gets $1.4-billion war chest to take on Amazon

Flipkart will acquire the India unit of eBay Inc which will continue to be independent.

Top e-commerce company Flipkart has raised $1.4 billion in funding, the largest so far in this space, from Chinese internet giant Tencent, along with US majors Microsoft and eBay. With this, the Bengaluru-based firm, founded by Sachin Bansal and Binny Bansal almost 10 years ago, is readying to up the battle pitch with Jeff Bezos-led Amazon and Jack Ma’s Alibaba in the Indian market.

As part of the deal, the India unit of San Jose-based e-commerce corporation eBay will come under the Flipkart fold. eBay, the oldest e-commerce player in this market, is selling the India unit as it wants to concentrate only in established geographies. The eBay.in business will report to Flipkart Chief Executive Officer (CEO) Kalyan Krishnamurthy.

While Flipkart’s valuation has dropped 23 per cent to $11.6 billion from its peak of $15 billion three years ago, it continues to retain the title of India’s most-valued internet company. This deal implies that SoftBank’s Masayoshi Son, spearheading a merger of smaller rival Snapdeal with Flipkart, will now have to shell out more cash to acquire a significant shareholding in the merged entity. Naspers, which owns around 16 per cent stake in Flipkart and 34 per cent in Tencent, will now increase its power in the Indian company’s boardroom. Even if Tiger Global sells a significant part of its stake to SoftBank, the Japanese company might see itself as a smaller investor in Flipkart unless it’s willing to pay big money.

SoftBank, persuading Kalaari Capital and Nexus Venture Partners to sell their shareholding in Snapdeal at a loss, was pushing for acquiring a 10 per cent stake from Tiger Global in Flipkart for $1 billion, giving the company a $10-billion valuation. But, the valuation of the next round could be higher, as the cash crunch at Flipkart is now a thing of the past.

Snapdeal co-founder and CEO Kunal Bahl, in a letter to employees on Sunday, confirmed that investors were looking to sell the company. Snapdeal, which had a peak valuation of $6.5 billion, has struggled to keep up with rivals Flipkart and Amazon, with its current value pegged below $1 billion.

“We are delighted that Tencent, eBay and Microsoft — all innovation powerhouses — have chosen to partner with us on their India journey. We have chosen these partners based on their long histories of pioneering industries, and the unique expertise and insights each of these bring to Flipkart,” stated co-founders Sachin Bansal and Binny Bansal on the company’s blog.

Binny Bansal, also the Group CEO of Flipkart, told employees in an email that “the latest funding round is significant for a few reasons: It is the largest in our 10-year history as well as the Indian internet sector. It provides solid growth capital so that we can cement and extend our lead in India’s e-commerce market. And our valuation remains healthy and in double-digits, reflective of the current business and the global economy.’’ He added that the company has just scratched the surface so far, pointing out the online retail potential at $100 billion. Bansal also said that while this funding would help the company reach its goals, the business must grow with “careful considerations to cost’’.

Tencent’s investment in Flipkart comes on the heels of rival Alibaba increasing its footprint in the Indian market with a $200 million investment in Paytm’s online retail arm. Alibaba could step up its investment as it gears up to dominate India.

“We look forward to helping Flipkart deliver compelling experiences to users throughout India, and to contribute to the development of the internet ecosystem there,” stated Martin Lau, president, Tencent.

Flipkart’s biggest rival, Amazon, has committed to invest $5 billion in the country over the next few years, with founder and CEO Jeff Bezos indicating the company will do anything to win India. Analysts expect India to turn into a battleground between Chinese internet heavyweights and Amazon, making it hard for local incumbent to win, unless steadily fed with capital.

Meanwhile, US online retailer eBay, which set up business in the country in 2004, will now maintain a presence in India through its $500-million investment in Flipkart.

Devin Wenig, eBay CEO & President, said, “The combination of eBay’s position as a leading global e-commerce company and Flipkart’s market stature will allow us to accelerate and maximise the opportunity for both in India.”

The Flipkart-eBay India merger will give the former a foothold in the consumer-to-consumer (C2C) e-commerce market, currently dominated by vertical players Quikr and Olx. Amazon, too, through its platform, Junglee, is looking to compete in the used goods market.

Gartner research director Sandy Shen said, “This round sees investment from strategic investors that will bring the technology and market expertise that Flipkart earnestly needs, in contrast to the previous round of mostly financial investors.”

While the $1.4-billion investment signals return of investor confidence in Flipkart, none of the company’s existing investors — Tiger Global Management, Naspers Group, Accel Partners and DST Global — participated in the latest round of funding. Tiger, which has so far sunk nearly $1 billion into Flipkart, is looking for an exit, said a source.