Fiscal year 2017-18 has brought a surge in funding for ecommerce start-ups along with it. After Yepme’s 4.5 crore fundraising activity, online marketplace Shopclues is in the news for raising funds.
Fresh Rs. 50 crore in Shopclues’ locker
Gurgaon-based Shopclues recently grabbed Rs. 50 crore in venture debt from InnoVen Capital, Asia’s leading venture lending firm. This money would help the home-grown etailer to cover their fixed costs and day-to-day expenses. Often called as the only marketplace that is profitable, Shopclues maintains that the company is still on the profitability track but needed funds for daily operations.
“We are profitable on a contribution margin level, but need to achieve a scale where we can cover our fixed costs. Our burn is reducing consistently. Hence, debt comes into play so that we can scale rapidly and reach profitability,” said Shopclues’ CEO Sanjay Sethi
In 2015 and 2016, Shopclues’ investors poured over Rs 400 crore into the company. But demonetisation slowed down the company’s growth and increased cash burn. As a result, the etailer was looking to raise some capital.
What is Venture Debt?
Many were surprised that Shopclues chose to raise venture debt. It is a type of venture lending most preferred by early stage start-ups and companies backed by venture capitalists. The purpose of venture debt capital is to meet working capital requirements and boost liquidity. Unlike equity, it doesn’t lead to dilution, doesn’t necessarily require a valuation and is less complicated.
“A company which is getting close to profitability has the option to raise either equity money or debt. Equity will lead to dilution, but you can pay off debt through your balance sheet. Debt is a good instrument to meet working capital requirement or any gaps to plug to achieve profitability,” asserted Sethi.
Is Shopclues ready for IPO?
Shopclues has come a long way from being a backbencher of the Indian ecommerce industry to becoming one of the top 5 players. In fact, the company is also close to edge out Snapdeal, which is getting ready to be acquired by Flipkart.
A venture capital official rightly puts, “A few things stand out for Shopclues. Their customers are not the ones frequently buying on Flipkart and Amazon. There is a huge market beyond the metros and ShopClues is going after them. Also, the management has been prudent on how they use the cash. They haven’t raised anywhere close to the capital some of the larger companies have used and consumed to get where they are today. It doesn’t need hundreds of millions of dollars.”
But as Shopclues started climbing up the ecommerce ladder, its losses too hiked up. The etailer’s net loss for FY 2015-16 touched Rs 383.05 crore compared to FY 2014-15 net loss of Rs 101.37 crore.
The online marketplace is all set for an IPO in 2018. With focus on reducing cash burn and filling working capital gaps, would Shopclues’ business be ready for an IPO by next year?