Online retail giant Flipkart starts talks with investors to raise $1.4 billion

BENGALURU: Flipkart has started talks with investors to raise about $1.4 billion (Rs 9,200 crore), four people aware of the development said, as it keeps up its fundraising spree and tries to cement its leadership in the online retail market.

US-based Sands Capital Management, two direct sources said, is in talks to lead the round with funding of $700 million.

Existing investors are expected to bring in an equal amount. The valuation of the company could end up between $15 billion, which is what India’s most valuable startup is worth now, and $18 billion, the sources said.


Flipkart declined to comment and Sands Capital did not immediately reply to emailed queries. In past two years, Flipkart has raised $2.6 billion as it tries to ward off challenges from competitors flush with cash or having the backing of moneyed strategic investors.

Flipkart’s frenetic fundraising — some $3.4 billion in total so far — is also a sign that a public listing is still some way away, industry observers said. Flipkart, founded by IIT-Delhi collegemates Sachin Bansal and Binny Bansal (they are not related) has said that it is aiming to sells goods worth $12 billion in the year to March 2016, a three-fold increase compared with last year.

Kunal Bahl of rival Snapdeal, which is backed by Japan’s SoftBank and Taiwan’s Foxconn, has said his company will top Flipkart’s gross merchandise value (GMV) “whatever the number”. Sands Capital, which according to its website focuses on “concentrated growth” investments over the long term, has over $47 billion under management. Its venture capital arm, Sands Capital Ventures, has backed grocery retailer Big-Basket and hyper-local logistics firm Opinio. In the US, its investments include startup unicorns such as Lending Club, AppDynamics and DocuSign.

Tiger Global Management is the largest shareholder in Flipkart, whose other key investors include South African media giant Naspers, Russian billionaire Yuri Milner’s DST Global, venture capital firm Accel Partners and sovereign wealth funds GIC Singapore and Abu Dhabi Investment Authority.

BURN RATE HAS INCREASED

People familiar with Flipkart’s operations are of the view that tburn rate — the amount of cash it uses up — of the company has only increased despite building dominance in categories like smartphones which are large but with wafer-thin margins. For Flipkart, it will be vital to maintain market leadership, which helps the company raise money at premium valuations. Any change in the pecking order while it attempts to get its bottom line under control could be a body blow to the company.

“The issue is that their burn rate hasn’t come down and remains at $50-60 million per month in steady state,” said an investor privy to Flipkart’s recent fundraising efforts which include pitches to several mutual funds and sovereign wealth funds since the third quarter of 2015. India’s online retailing market, which Goldman Sachs projects will expand to $36 billion in 2016-17 from $11 billion in 2014-15, has seen increasing competitive intensity as companies, backed by money from long-term investors, have discounted heavily to win market share.

Amazon has said it will invest $7 billion in India, and Delhi-based Snapdeal has snagged nearly $1.3 billion since 2014 from blue-chip investors while Paytm has brought the Alibaba group on board with investments of some $700 million. Bengaluru-based Flipkart is betting big on its advertisement business, which is being directly overseen by Chief Executive Officer Sachin Bansal. It is also running pilots for a grocery delivery operation and looking to foray into the mobile wallet business through the acquisition of FX Mart. The mobile wallet business, while attractive, is also a highly competitive segment with well-funded rivals like Paytm.