E-commerce fund-raise may take a break now as firms prepare for payback

The next mega round of fund-raising in the Indian e-commerce sector is unlikely anytime before the second half of 2019, industry watchers are suggesting. Of course, cab aggregator Ola, which announced a $1.1-billion fund raise on Wednesday, could get another $900-million investment soon as part of the same round.

The possible pause in fund-raising over the coming months may not have anything to do with the economic slowdown. But major e-commerce companies will have a run time of almost 24 months with their current funds, according to analysts. The big three in the country’s internet space-- Flipkart, Ola and Paytm-- have collectively raised close to $5 billion in the last eight months. This is enough for them to reach their targets, they say.

Indeed, the coming months are being seen as payback time for the e-commerce biggies.

From achieving profitability targets to heading for an IPO, investors hope to finally start seeing returns on investments. While Flipkart, which recently raised around $2.5 billion, has started preparing for a NASDAQ listing, cab aggregator Ola, according to sources, will start its preparations in the next eight months. The company, which just raised a total of $1.1 billion from multiple tranches, has also set a 24-month goal for reaching profitability. 

“The expectation from Flipkart and Ola would be monetisation. With the money they have raised they are in a comfortable position to do what is right. It has started showing as the old deep-discounting model is phased out. Till now it was about growth, now it would be about consolidation and in the next 24 months these companies might either head for an IPO or achieve the targets promised,” said Amarjeet Singh, Partner, Tax, KPMG in India.

Flipkart earlier this year hired one of the Big Four audit firms to prepare for its IPO on the Nasdaq. The consultant had already begun the due-diligence process, which would last 18-24 months, people familiar with the development said. According to senior executives, the company is working on streamlining its financial operations to prepare the books to meet the requirements for a NASDAQ listing.

While Flipkart declined to comment on the issue, sources close to the company said Kalyan Krishnamurthy, chief executive officer of Flipkart who is the point man for US-based investment giant Tiger Global in the e-commerce firm, has been asked to prepare the company for an IPO.

Barely holding onto its territory in the face of stiff competition from Uber, which has more than $15 billion in its kitty to win the India market, Ola hopes that with this funding round it will finally achieve its target of achieving profitability in the next two years. The company hopes that it will help it gain back investor confidence, which it needs before heading for an IPO. With all the problems the US ride-sharing major is facing, experts believe that Ola might just have a shot.

“These funding rounds clearly show the potential of these companies to break even and make profits. With Uber facing its share of problems, Ola has a chance to improve its unit economics,” said Saurabh Srivastava, Chairman, Indian Angel Network.

Paytm, which has been on a rapid growth trajectory since demonetisation last year, has since started its payments bank as well as a separate e-commerce company, Paytm Mall. While an IPO is not on the cards for the Vijay Shekhar Sharma-led company, it may also have to start making profits, at least from its core wallet business, at the EBITDA level to gain investor confidence. The company managed to raise a total of $1.8 billion from SoftBank Group. 

However, some experts believe that investors both old and new might want to scale up these companies even further. “SoftBank, Tencent, they are all long-term investors. The push might be towards scaling up. In fact, these companies might burn more cash and might require more than a year,” said IvyCap Ventures founder and Managing Partner Vikram Gupta.