Early investors in Indian e-commerce book huge profits

MUMBAI: Amid all the cash burn and eye-popping valuations, early investors in India's burgeoning e-commerce sector are beginning to book profits. TOI has learnt that Bengaluru-based venture fund Kalaari Capital may be in the process of executing a secondary sale of shares worth $100 million (Rs 610 crore) in Delhi-based Snapdeal.

The e-tailer's bigger rival, Flipkart, saw a similar secondary transaction a few months back, revealed sources. Early backers of the country's largest e-commerce player like Accel Partners part-sold their shares in a $150 million (Rs 910 crore) round. This round also saw some investors and employees in Myntra, which was bought out by Flipkart earlier this year and became its shareholders, selling their shares.

A secondary sale is when an existing investor sells shares to a new one or the promoter at the company's current valuation. The money does not come into the company's coffers. Secondary deals have been common among private equity funds in India, but are comparatively rare for venture capitalists.

Vani Kola, MD at Kalaari Capital -- which is now a shareholder in Flipkart as an early Myntra investor -- did not respond to a query from TOI regarding the secondary transaction at Snapdeal. Accel Partners also did not offer any comments till the time of going to press about selling shares in Flipkart.

One of the first investors in Flipkart back in 2009, Accel had put in a million dollars in the company, which is now valued at over $10 billion. Kalaari, which first invested in the e-tailer as IndoUS Ventures, has in all put $25 million (Rs 150 crore) in Snapdeal over the past five years and holds around 14% stake in the online commerce player.

"Exits of early investors via secondary transactions is a very healthy trend and fills the last mile of the investing ecosystem. Exits are the lifeblood of venture capital and have been an issue in India. So this is an encouraging development and shows maturation of the process,' said Avnish Bajaj, MD at early-stage VC fund Matrix Partners India.

Sources privy to the matter told TOI that Kalaari, an early-stage $160 million fund, was likely to shed a small single digit stake, giving it a windfall return nearly the size of its current fund. Sources said the secondary deal was being done at a higher valuation to the SoftBank round which valued Snapdeal at around $2 billion. The Japanese telecom and internet giant, which pumped $627 million into the company, owns about 32% in Snapdeal.

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The exact size of these secondary deals at Snapdeal, Flipkart and Myntra and the identity of the buyers could not be ascertained immediately.

Silicon Valley fund Bessemer Venture Partners, another early investor in Snapdeal, part liquidated its shareholding in the company, booking gains on its investment during the SoftBank round itself.

The country's top online commerce players including Flipkart, Snapdeal and Amazon have been bleeding on account of their frenetic growth and discounting to lure customers on to their platforms. TOI carried a report last week stating that almost a billion dollars in investor money was being guzzled up by the larger e-tailers collectively on account of advertising, discounting and increasing their employee strength. Flipkart and Snapdeal alone have raised about $3 billion this year from investors.

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Alibaba turned singledom into the world's biggest online shopping holiday

Five years ago, Alibaba, the Chinese e-commerce giant that went public in September with the biggest IPO ever, co-opted the date. In a bid to increase sales in the lull between China’s Golden Week national holiday in October and the Christmas season, Alibaba started to offer deals on its online shopping platforms, touting the day as an excuse for self-gifting and personal indulgence.

In 2009, consumers spent 50m yuan (£5m) and 27 merchants offer discounts.

In 2012, Alibaba, which acts as an online marketplace similar to Amazon or eBay, trademarked several terms relating to Singles Day.

In 2013, 20,000 retailers took part, and Singles Day sales overtook Cyber Monday’s $1.46bn (£0.92bn) worth of sales by 8.42am. Over the whole day, consumers spent $5.8bn -- far more than the combined Black Friday and Cyber Monday sales from all US companies.

And this year looks set to trump that. According to an Alibaba-related Twitter feed, which is live-tweeting the shopping frenzy, consumers spent 1bn yuan (£100m) in the first three minutes and $1bn (£630m) in the first 17 minutes. Within the first hour, shoppers had spent more than $2bn. Read detailed article.

According to a report, There is a vast potential for the e-commerce sector to grow in India with the implementation of the Digital India programme, Ravi Shankar Prasad, Communications & IT Minister, said at the 10th national summit on E-governance & Digital India organised by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) in New Delhi yesterday.

Prasad said, “I see a vast opportunity for e-commerce…I see almost an explosion of various kind of availability of services through e-commerce.”

Retail exports (e-tailing) is a growing sector in India and e-commerce plays a key role in it. According to the Federation of Indian Exporters Association (FIEO), e-commerce exports from India in 2013 are estimated at around $1 billion and expected to grow over 100% in 2014.

Meanwhile, more and more people in India are trying to sell their products online. According to Ravi Shankar Prasad, people in rural India are looking up to the success of e-commerce-based companies such as India’s Flipkart and China’s Alibaba. He said, “We can have couple of Alibaba(s) in coming future if we are able to rollout this [Digital India] programme very well.”

The Digital India programme aims to improve Internet and telecom connectivity in the rural parts of India in three years. According to official sources, around 50,000 panchayats currently have access to the Internet through optical fibre network. The Digital India programme targets expanding it to over 2,50,000 panchayats by 2016-17.

Prasad also said that there is a need to encourage electronic manufacturing in India. At present, India imports electronic goods worth $100 billion annually and it is estimated to grow to over $400 billion by 2020, which will be more than India’s fuel imports. Prasad said that the government is providing incentives to companies and urged domestic manufacturers to produce low cost smartphones to help people in the rural parts get access to e-governance and other online services.

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