When talks about Flipkart’s $1 billion funding were at its peak, IOS reported how Indian start-ups were waiting with bated breath for it. Primarily because, the ecommerce industry was going through a funding lull for over two years. And etailers’ expectation was that Flipkart bagging over one billion would improve their financial situation.
Now that Flipkart has not only grabbed $1.4 billion but also acquired eBay India, would the expectations turn into reality?
The high point of Flipkart’s business cycle
It is not the only or first one, but the recent funding round is definitely one of the biggest high points of Flipkart’s inning in the ecommerce industry. It came at a time when the online marketplace was getting crushed under heavy losses, devaluations and top management exits/shuffle.
The acquisition of eBay India is another feather (?) in its cap. In addition, there’s a strong buzz that Flipkart is all set to acquire rival Snapdeal as well. After a series of bad news, things are looking up for the home-grown etailer.
And since Flipkart is the poster boy of the Indian ecommerce industry, this surely has got national and global investors interested in the Indian ecommerce industry, once again.
“Investors have been asking about the Flipkart situation, as the company has had a lot of negative PR. There was negative sentiment among investors even for smaller/early-stage startups. After all, the bell ringer of Indian e-commerce being in trouble is a cause of concern for them – they would be worried about whether their investment was safe,” stated co-founder of Wooplr, Arjun Zacharia.
Yes, start-ups are happy that investments might come back
So the good news is that start-ups are pleased after hearing about Flipkart’s recent developments. Other ecommerce players feel that the pressure is off and now investors would be more than happy to pour some money into their respective ventures.
Lizzie Chapman, co-founder of fin-tech start-up ZestMoney exulted,
“I said to Binny, THANK YOU for saving the startup industry in India. We are all relieved. All the global investors we spoke to last year were like ‘oh e-comm [sic] in India is dead’. No way is it dead!”
Another start-up Crofarm co-founder Varun Khurana believes that Flipkart’s fund-raising round “demonstrates the confidence restoration of foreign investors in the Indian startup story”.
Investments would dry out again, if etailers aren’t considerate of investors’ money
Like all things in life, conditions apply here as well. Flipkart’s $1.4 billion has managed to reduce the cynicism around the Indian ecommerce industry to a certain extent. But ‘cash-burn model’ would have to leave. Or else, the funding lull would rear its ugly head once again.
Calling ecommerce companies overvalued, influential banker Deepak Parekh asserted,
“Time has come to caution and rein in the cash burn model. There has to be threshold level where the revenue stream and profitability have to become key considerations, rather than just focusing on gross merchandise value. Unless these companies post cash profits, how will they ever be self-sustaining? Otherwise, the model is just based on going from one private equity fund to another and at some stage someone will be left holding the baby and this can have a domino effect across the entire system.”
Investors are pretty clear that the ecommerce biggies would have to focus on profitability so that investors could exit with money in their pockets, if they want funds to keep flowing.