By Rohit Mishra
Flipkart has been in the news recently for multiple reasons, but this time the so-called ?startup? breathed a sigh of relief when it raised $1.4 billion at a valuation of around $12-15 billion. It also may be on the verge of acquiring its biggest local rival, Snapdeal. So, is the worst over for the Bansals? Or is this just a form of delayed gratification?
Starting out
Flipkart was founded in 2007 by Sachin Bansal and Binny Bansal-two IIT-Delhi alumni who left their high paying jobs at Amazon to start selling books outside the Churchgate Railway Station in Mumbai. The first book they sold was even titled- ?How I left Amazon to change the world?. Slowly and gradually they focused on online markets and, within one year of business, the company recovered its initial investment of $8000 and was able to break even.
In 2009, Flipkart received its first trace of funding worth $1 million. By 2013, the company was already valued at $1 billion with a revenue growth of 700%. Sachin Bansal received the 2012-2013 Entrepreneur of the Year Award from the Economic Times. By the end of 2014, they had received $1bn in funding, and the very next day Amazon raised $2bn from its parent company and declared war. The Bansals also acquired Myntra and reached the zenith of their career.
All good things come to an end
The law of diminishing marginal utility states that everything has a saturation point. Hence, things started going wrong for Flipkart. They failed to make a billion dollar sale. Logistics and product flaws increasingly became a headache. Amazon, on the other hand, capitalised on the opportunity and started increasing its market share.
Since September 2015, the founders are regularly visiting the U.S. to raise a fresh round of funding but find themselves unable to raise any, as they want the agreement to be in their favour. The founders and investors would have thought that when the company went public, everyone would make 70?80 times their investment. Even a layman would invest in Flipkart due to its popularity. Moreover, the company is considering listing itself on the New York Stock Exchange.
Morgan Stanley?and four other mutual fund houses and investment banks had reduced its valuation from $15 bn to $11 bn and eventually to $9.39 bn. Recently, Sachin Bansal has said that such cuts are the “opinions” of economists and cited the case of Uber to illustrate that it will not impact fundraising plans of the e-commerce giant. Uber also raised money at a higher valuation, but only time will tell to what extent this will impact Flipkart.
Last year, Flipkart postponed the immersion of 40 students from IIM-A,B,C,L including 18 from IIM-A. The IIM-A placement committee wrote to Flipkart with regards to the company’s erratic behaviour and threatened not to send any more students in the future. Paytm, Amazon?and?Shopclues readily accepted the deferred candidates. All this while the Flipkart workforce has nearly tripled in the last 18 months, from 14,000 to 35,000 employees.
A time of turbulence
In April 2016, the DIPP (Department of Industrial Policy and Promotion) introduced some amendments in the E-commerce space which will impact Flipkart?s business practices. First of all, there is now 100% FDI in market-based E-commerce firms while 0% in inventory-based models through automatic route. This has made fundraising even more difficult for Flipkart. Secondly, no group company or seller on a marketplace can contribute more than 25% of the sales generated on the site. Therefore, Flipkart?s logistics arm WS Retail will have to scale down its operations. Lastly, as marketplaces cannot influence prices, the government may end up stopping the flow of discounts, which have helped make online retail popular in India. Therefore, we may not see any big-billion sale or discounts in the future which will sustainably reduce the revenues of Flipkart.
In the last year, there has been a major overhaul in Flipkart?s human resources with Binny Bansal taking over from Sachin Bansal as CEO. While, Mukesh Bansal, the founder of Myntra, who also heads Flipkart?s commerce platform, resigned this March, Ankit Nagori, an IIT-Kanpur alumnus who used to head the Flipkart Marketplace product group also resigned from Chief Business Officer in March and is planning to team-up with Mukesh Bansal to launch a healthcare startup. Punit Soni, an ex-Googler considered Flipkart?s biggest hire from Silicon Valley, left as Chief Product Officer in April 2016. Finally, earlier this year, Kalyan Krishnamurthy of Tiger Global took over as the new CEO replacing the Bansal duo from their own company.
Problems are compounding Flipkart day by day, but the recent news of funding and the Snapdeal acquisition has helped boost some confidence. But, perhaps the dust has not yet settled and it’s just the quiet before the storm.
Featured Image Source: Flickr
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