Kalaari, Nexus prove stumbling blocks in Softbank's bid to exit Snapdeal

Early-stage investors said to be 'livid' over valuation at which SoftBank wants to exit Snapdeal

The plot only gets thicker from here, as even after multiple rounds of talks, Softbank has not been able to convince the early-stage investors in Gurgaon-based Snapdeal for a sale which would help the Japanese major exit from the company. 

According to four sources privy to the developments, while early-stage investors in Snapdeal – Kalaari Capital and Nexus Venture Partners – are confident of the company's present business plan and want it to go for an initial public offering (IPO) in the next two years, Softbank wants to immediately sell its stake and hedge its bets in other e-commerce ventures, something which has caused a major rift between the two parties.

Also, according to sources, while Softbank is trying to sell its stake in Snapdeal, where it is the biggest shareholder and has invested close to a billion dollars, it has also assured the e-commerce company of giving close to $200 million so that it can go ahead with its business plans and head for an IPO.

"There are two different things Softbank is doing. On one hand it is telling Snapdeal that it has confidence in the founders and their plans, on the other hand it is looking for a quick exit. We have to see what finally happens," said a person close to the developments.

And then there is a question of valuation. Kalaari and Nexus are livid with the valuation Softbank is trying to sell Snapdeal at. While Snapdeal's valuation was pegged at a hefty $6.5 billion till December 2016, making it the second most valuable Indian e-commerce firm after Flipkart, Softbank is apparently planning to sell it for between $600 million to $800 million.

"The two early stage investors, for whom Snapdeal is a treasured investment even till now, are not ready to have its valuation pegged so low. Plus, it would mean that they would have to let go of their investment at a loss, which they are not ready for," said another person privy to the developments.

Also, not all of Snapdeal is loss making. Its logitics arm Vulcan Express Private Limited and e-commerce management firm Unicommerce are either profitable of would be so in the days to come. Furthermore, its wallet Freecharge is still the number two wallet player in the country. All this still makes Snapdeal a valuable company and Nexus and Kalaari want these things to be considered before selling the online marketplace.

"Right now, it is a battle of wits. Both the parties are trying hard to see who gives in first," said a person close to the developments. According to sources close to the company, Snapdeal plans to launch an IPO by 2019. In a mail to his employees, co-founder Kunal Bahl also indicated that while investors’ perceptions might change, a company could launch a blockbuster IPO if it stuck to the plan and focused on the core audience.

The company has managed to cut down its costs by 60 per cent, Bahl had said in the mail. The latest email was more optimistic than his previous one to employees where he had admitted to making mistakes. Bahl said they were “on the path to profitability”.

  

“Many of you would have seen the wildly successful IPO of D-Mart. It is incredible the clarity of thought the company has and the focus it has on efficiency and profitability. While investors in the ecosystem may keep changing their point of view on what e-commerce companies should do — from conserving cash at times to driving top line growth at other times — it is clear from the D-Mart story that having a consistent strategy, building thoughtfully and for the long term creates an incredible outcome,” Bahl said in the mail.