Tiger Global to gain the most if Flipkart buys Snapdeal
NEWDELHI/BENGALURU: A $1 billion buyout of struggling online marketplace Snapdeal by Flipkart may yield more immediate benefits to Tiger Global Management, Flipkart’s largest investor, than to the buyer or to consumers.
The buyout is being arranged by Tiger Global MD Lee Fixel and SoftBank Group Corp, which count Flipkart and Snapdeal as their largest holdings, respectively. The deal may see SoftBank buy some of Tiger’s holdings in Flipkart and put additional cash into the company, said two people familiar with the matter.
The proposed deal seems like a desperate attempt at financial engineering by the country’s two most influential start-up investors, which have seen their bets falter to differing degrees over the past 15 months (SoftBank’s a lot more so than Tiger’s).
SoftBank is desperate to salvage what it can of its $900-million investment in Snapdeal, which accounts for nearly half of all the cash it has invested in Indian startups; the Japanese firm’s eagerness to exit the online retailer, once valued at $6.5 billion, is matched by Fixel’s need to take some cash out from Flipkart. Fixel needs some returns after having pumped more than $2 billion into Indian startups since 2010. Roughly half that amount went to Flipkart, his prized bet on which he has staked his reputation and his job.
However, though a deal makes sense for Fixel and SoftBank, it will be tough for Flipkart to extract meaningful gains from a buyout of Snapdeal, analysts and investors said. Flipkart already faces steep odds in holding off Amazon India, which is running neck and neck with its local rival.
“It’s a double-edged sword for Flipkart,” said Rutvik Doshi, MD at Inventus Capital, a venture capital firm. “Absorbing Snapdeal will be very, very challenging and will likely turn out to be a big distraction for the management team. But then, Flipkart would also be getting SoftBank as an investor which may prove to be significant in the long term.”
That’s said to be the primary attraction of the deal for Flipkart — getting SoftBank on its investor roster. SoftBank, the world’s largest startup investor, is best known for being an early backer of China’s Alibaba Group; SoftBank’s initial investment of $20 million turned into a stake worth more than $60 billion when Alibaba listed its shares in 2014.
Even so, Flipkart is well funded. The company has more than $2 billion in cash after raising $1.4 billion last week; it has also slashed spending. So, from an operational perspective, a deal makes little sense for Flipkart.
After slashing costs earlier this year, Snapdeal’s monthly sales fell to less than ₹400 crore, said two other people familiar with the firm’s sales. That’s even lower than the average monthly sales at Flipkart-owned fashion retailer Myntra, the people said.
So, does Tiger need SoftBank more than Flipkart?
“When you’re fighting Amazon, $1.4 billion suddenly doesn’t seem that much,” said Sandeep Murthy, MD at venture capital firm Lightbox Ventures. “Getting SoftBank as an investor is worth risking the distraction of a distressed asset (like Snapdeal).”