Ama­zon-Flip­kart: the much needed block­buster exit?

The Pak Banker - - 6BUSINESS - Snigdha Sen­gupta

THE au­tumn of 2007 was a spe­cial one for In­dia's start-up ecosys­tem. Two com­puter science grad­u­ates from the In­dian In­sti­tute of Tech­nol­ogy Delhi, Sachin Bansal and Binny Bansal, had just quit their jobs with Ama­zon Inc.'s soft­ware devel­op­ment cen­tre in Ben­galuru to start an on­line book­store out of a two-bed­room apart­ment in the city. The big dream was to cre­ate the Ama­zon of In­dia.

A lit­tle over eight years later, Bansal and Bansal helm a home-grown In­ter­net pow­er­house that has put In­dia on the global e-com­merce map. But it isn't the Ama­zon of In­dia. That's be­cause the Ama­zon of In­dia is well, Ama­zon. The world's largest on­line re­tailer en­tered the In­dian mar­ket with an on­line mar­ket­place just about three years ago and al­ready owns 12% of the mar­ket in terms of gross mer­chan­dise value (GMV), ac­cord­ing to 2015 data re­leased in Fe­bru­ary by Mor­gan Stan­ley. Flip­kart, though, re­mains streets ahead with a 45% share of the mar­ket in GMV terms.

Ama­zon now wants to close that gap, and quickly. At least that's what a re­port in The Eco­nomic Times from last week sug­gests. In the last quar­ter of 2015, the re­port quot­ing mul­ti­ple anony­mous peo­ple says, Ama­zon made a play for Flip­kart, of­fer­ing to buy it for $8 bil­lion. That's nearly half the $15.2 bil­lion val­u­a­tion that Flip­kart claimed when it had last raised funds. The re­port also in­cludes a quote from Binny Bansal, who re­cently took over as CEO from Sachin Bansal. "All ru­mours of po­ten­tial sale and down rounds are false and base­less," he said.

It could be all fic­tion. Talk of Ama­zon buy­ing Flip­kart pops up ev­ery now and then and, usu­ally when the ex­ter­nal en­vi­ron­ment turns a bit ad­verse. Like it is now. There's a val­u­a­tion cor­rec­tion un­der­way in In­dia's start-up mar­ket and both early- and late-stage in­vestors have turned ex­tremely se­lec­tive about fresh cap­i­tal com­mit­ments, es­pe­cially in later stage start-ups.

But let's con­sider for a mo­ment that Ama­zon does buy Flip­kart for $8 bil­lion. There's spec­u­la­tion that it could be lower, maybe even as low as $6 bil­lion. Still, even at that price, would that be such a bad out­come for all stake­hold­ers con­cerned? Take Ac­cel Part­ners, for in­stance, which re­port­edly owns about 20% of the com­pany and seeded the com­pany with $1 mil­lion in 2009 (it has in­vested more money in sub­se­quent fund­ing rounds). Even at $6 bil­lion, Ac­cel stands to make su­per­nor­mal re­turns that will prob­a­bly ex­ceed any that the In­dian ven­ture cap­i­tal mar­ket has de­liv­ered so far. Then there are the Bansals them­selves who own about 7% each. More im­por­tantly, it could be a bet­ter- than-good out­come for In­dia's nascent ven­ture cap­i­tal in­dus­try, which is get­ting into the next decade of early-stage in­vest­ing. Let's face it. The ven­ture cap­i­tal mar­ket here is yet to de­liver a block­buster exit and that's be­com­ing a mat­ter of some con­cern for lim­ited part­ners (in­vestors in ven­ture cap­i­tal funds). The last big exit recorded was the $400 mil­lion ac­qui­si­tion of on­line recharge ser­vice provider Freecharge by Delhi-based e-com­merce com­pany Snapdeal. Freecharge had raised a to­tal of $117 mil­lion from mul­ti­ple in­vestors, in­clud­ing Se­quoia Cap­i­tal.

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