VC investors flock to e-services firms

With most e-retail firms being heavily funded, venture capital (VC) investors have shifted their investment focus to e-services firms.

A few days ago, taxi service aggregator Ola Cabs received raised $210 million from a clutch of VC investors, including Japanese major SoftBank. In July, Ola had raised $42 million from Tiger Global, Matrix India, Steadview Capital and Sequoia India.

Ankur Bisen, senior vice-president (retail and consumer products) at Technopak, said: "E-servicing firms do not have product risks associated with them like inventory, product obsolescence and related logistics, and servicing challenges. While there are other challenges, the absence of these challenges make these firms appeal to investors as long as the service can justify the ability to generate sizable and growing demand for it."

Compared with an investment size of $264 million in 2013, year 2014 has seen investments worth $788 million so far in e-services firms in India, according to data from VCCEdge.

Tarun Davda, Director, Matrix Partners India, believes building e-services marketplaces requires deep local understanding and on ground operations. He says, "Global firms will find it difficult to compete with Indian firms in this space, especially if the Indian companies have achieved some scale, as it's difficult for them to gain onground operational knowledge and compete with a network effects business. Indian companies have the advantage of having local insights and understanding of the Indian consumer."

Online classified site Quikr.com had raised $60 million last month, five months after the firm announced a $90-million fundraising led by Swedish investment firm Investment AB Kinnevik. Sites such as CarTrade.com (it raised $30 million from Warburg Pincus), Housing.com ($19 million), Commonfloor.com ($30 million from Tiger Global), IndiaHomes.com, Bookmyshow and Taxiforsure are popular.

Sanjiv Krishan, leader (private equity) at PwC, said: "Deals in e-services offer a chance for investors to participate in the overall growth of e-commerce in India at a lower valuation. Compared to e-retail, where investors need to keep pumping money to keep business alive, investors can realise immediately about the success rate in e-services space."

Noida-headquartered mobile internet firm One97 Communications, which runs recharge platform Paytm, is reportedly in talks with investors to raise a fresh round of funding. The company had earlier raised $28 million from SAIF Partners, Intel Capital and Silicon Valley Bank.

Since 2012, 348 deals worth $1.2 billion have taken place in e-services in India, while 178 deals worth $2.8 billion took place in e-retail. Compared to deals worth $582 million in 2013, e-retail saw $1.9 billion worth of deals in 2014.