Sachin Bansal and Binny Bansal (unrelated), the founders of Flipkart, India’s largest e-commerce marketplace, are becoming globally famous at a time when the valuation of the company, and its high-cash burn rate, are causing investors to stay away.
Getting mentioned in the Forbes Rich List, and the TIME 100 list – a list of 100 most influential people in the world — are widely accepted benchmarks of having arrived in life. Money and influence have defined power for millennia. And the Bansals are only in their early thirties.
Forbes India magazine valued at $1.3 billion each, the first time they featured on the list. And yesterday, Time magazine featured them in its annual list of top influential people in the world, along with technology titans such as Apple’s Chief Executive Officer Tim Cook, Facebook CEO Mark Zuckerberg (and wife Priscilla Chan), and Sundar Pichai, the India-born CEO of Google.
Ironically, this recognition came after Flipkart seems to be past its heady days of growth and soaring valuations.
Between 2013-15, the company grew at a dizzying pace, and raised more than $3 billion in funding, according to CBInsights.
Its valuation was $1.6 billion in October 2013. In just one year, that zoomed to $7 billion when it raised as much as $1 billion in a single round of funding from Accel Partners, DST Global, GIC Special Investments, Iconiq Capital, Morgan Stanley, Naspers, Sofina and Tiger Global Management.
By 2015, it was valued at more than double of that ($15 billion) during a $550 million funding round led by Tiger Global, which was also one of the earliest investors in Flipkart. The valuation then inched up to $15.6 billion, when Steadview Capital invested $100 million in August last year. At that point, Flipkart peaked. People started asking if it can be referred to as a startup at all.
But the environment was changing fast, and things were about to get adverse. In the fourth quarter of last year, everything changed. Venture funding for startups fell about 30 per cent, and continued to drop in the first three months of 2016. Unicorns struggled to hold on to their valuations.
Growing competition from Amazon, which is investing $2 billion in its India business, was already denting Flipkart’s marketshare. Hedge fund money that had flooded Indian startups in the first five months of 2015, started tapering off in the last two quarters.
Reports said that Flipkart has not been able to raise money for months now, at the valuation it wanted. And it managed to raise only half of its targeted GMV — the value of goods sold on a site excluding discounts — after which its sales growth stagnated.
Morgan Stanley pared the company’s valuation to $11 billion in March. T. Rowe Price, another investor, devalued its investment by more than 15 per cent. Fidelity Strategic Advisors Growth which also owns Flipkart shares, has marked down its holdings in the company by 27 per cent.
On top of that, the Indian government came out with rules that effectively worked to bolster offline stores, a powerful lobby. E-commerce firms were barred from offering discounts, and were asked to source only a maximum of 25 per cent from a single seller. This was bad news for Flipkart, which was sourcing majority of its sales from WS Retail, a firm it had built up over the years. Both the rulings were clearly opposite to what e-commerce players had expected from a supposedly business-friendly government led by Prime Minister Narendra Modi.
Probably the best time to the Flipkart founders on the list of top 100 influencers was in 2014. Nancy Gibbs, the editor of Time, said that the list also focusses on figures whose influence will most likely grow. And Flipkart’s founders have indeed influenced a lot since 2014, from inspiring other entrepreneurs to dream big, to showing that home-grown startups can be leaders and raise huge amounts at valuations that were once unthinkable.
Right now, investors are not exactly betting on it to become more influential. They are insisting on more realistic valuations, as a couple of them told DEALSTREETASIA, and want a clear pathway to profitability.
That would not be easy for Flipkart, which had grown on the back of big discounts and huge cash-burn. Flipkart has raised enough cash to last another year atleast, which means that it can wait it out until the funding environment eases again, and not agree to a ‘down round’ this year.
But as Amazon continues to grow, and Alibaba, the Chinese e-commerce giant. finalizes plans to enter India, the competition will only get tougher. In other words, it might be time to hit the ground after a soaring ride. Flipkart’s founders would be hoping it all works out well, and that Time 100 recognition is a sign of better things to come.