These 6 Digital Businesses Are Now Flush With VC Money

SANGHAMITRA MANDAL, DEC 26, 2013, 01.25 PM

Internet businesses in India seem to have reached a tipping point, going by the kind of venture capital investments we have seen in the current financial year, starting from April 2013. Overall digital commerce has flourished worldwide throughout the calendar year and is expected to reach well over $1 trillion by the end of CY2013 (ending in December), according to MarketResearch. On the other hand, the e-commerce market in India is growing at an average of 34% since 2009 and is expected to reach $13 billion by year-end, according to the recent KPMG-IAMAI (Internet and Mobile Association of India) report e-Commerce Rhetoric, Reality and Opportunity. The e-tail sector is expected to grow at 59% a year and will account for one in every two e-commerce transactions by 2016, the report says. But the India story does not look too promising as a spate of consolidations and shutdowns took place - mostly due to lack of funds. In fact, an estimated 70-80% of e-commerce companies are in dire need of funds, as per the KPMG-IAMAI report. The fund crunch had hit the Indian firms hard and around 136 e-commerce start-ups had to shut shop between November 2012 and April 2013, says the news site NextBigWhat.com. According to Rahul Khanna, managing director of Canaan Partners India, e-commerce in India requires very deep pockets and follow-on rounds are extremely crucial for growth. Unless companies can abide by this fundamental rule, they could be shutting down or another surge in mergers and acquisitions could happen. However, some big-ticket investments from April onwards tend to indicate revival of investors' confidence in Indian Internet companies. For a change, not all of the funding has gone into typical B2C e-tailers. Digital ad network Komli Media, data security solutions provider Druva Software and classifieds firm Zomato have also raised significant funding from local and global investors during the first three quarters (AprilDecember) of the current financial year. Till November end, investments worth $635 million have flowed into India's e-commerce sector, spread across 40 transactions, according to research

firm Venture Intelligence. This pinpoints a sharp rise in total deal value from 2012, which saw transactions worth $433 million. Does it mean VCs (or PE investors, in some cases) investing in Indian initiatives now have bigger risk appetite? Or are they now mature enough to grow past the merchandise-oriented ecom investment culture? Well, not exactly. Since 2011, equity investors put in almost $1.2 billion into online product retail, says Venture Intelligence. And a large chunk of this funding went into just one company - Flipkart.com. Most of the VC players are still playing safe and putting money into biggest Indian e-tailers like Flipkart, Snapdeal and HomeShop18. However, niche e-com players like Healthkart, LensKart and BabyOye have also raised $10-14 million in equity financing this year. Here is a quick look at the 6 top-funded digital businesses of the year. 1. Flipkart - tops the funding list: Six-year-old Flipkart, often touted as India's Amazon, has topped the funding list till date and amassed around $550 million. In 2013, the Bangalore-based company raised $360 million in Series E, spread over two tranches, from a slew of investors including Accel Partners, Tiger Global, Naspers of South Africa, Iconiq Capital, Belgium's Sofina, US-based Morgan Stanley Investment Management, Dragoneer Investment Group and Vulcan Capital (founded by Microsoft co-founder Paul Allen). The second tranche of $160 million valued Flipkart at over $1.6 billion, according to an Economic Times report. This is similar to its valuation in July when it raised the first tranche of $200 million. Interestingly, Flipkart is worth more than the total market cap of all 15 listed retail companies, including Future Retail, Shoppers Stop, etc. Among brand-led firms, Flipkart's valuation is comparable with heavyweights such as P&G India and Tata Global Beverages. The company may opt for an IPO in a year, according to media reports. Interestingly, Flipkart India Pvt Ltd, the wholesale business of India's largest e-tailer Flipkart, reported a loss of Rs.281.7 crore in the year ended March 2013, compared to its loss of Rs 109.9 crore in the previous year. This is because the company has upped its spending significantly in a bid to increase its revenues, the same model followed by Amazon in the US. Flipkart's revenues jumped fivefold to more than Rs 1,180 crore from Rs 204.8 crore in the previous year, but one wonders if the company can survive the fast and furious cash-burning (in spite of heavy funding) required to grab market share.

2. Snapdeal - a growth story growing stronger: The Snapdeal story is almost similar. The online marketplace raised about $50 million in April this year from eBay, Japan's Recruit Co, Intel Capital, Saama Capital, ru-Net Ventures, Bessemer Venture Partners, Nexus Venture Partners and Indo-US Venture Partners (now Kalaari Capital). It is the first investment in India by Recruit, a $10 billion classifieds and human resources company. Venky Harinarayan and Anand Rajaraman, who co-founded the US-based Internet company Junglee that was bought over by Amazon in 1998, are also investors in the latest round, according to ET. The Delhibased firm raised the money in two tranches, taking its total fundraising to $103 million. Snapdeal has been valued at $600 million and is reportedly looking at a US listing in 1-2 years. 3. HomeShop18 - on a roll: HomeShop18, the multimedia retail arm of Network 18 Media and Investments Ltd, got a follow-on round of $14 million in October this year from Korean firm GS Home Shopping Inc., as well as Network 18 and hedge fund manager OCP Asia. The latest transaction values HomeShop18 at $360 million. Earlier in April, the company raised a $30 million round from OCP Asia and Network18. SAIF Partners is also an existing investor into the company. HomeShop18 has reportedly filed for an IPO on NASDAQ, hoping to raise around $100 million. 4. Zomato - no speed limit here: This online & mobile platform for restaurant listing, search and review secured a Series D round of $37 million in November 2013 from Sequoia Capital and existing investor Info Edge, making it one of the largest investments in the consumer Internet space till date. BSE-listed Info Edge, which owns the portal Naukri.com and other Internet businesses, is the biggest shareholder in Zomato and owns 50.1% stake on a fully converted and diluted basis. Gurgaon-based Zomato Media was set up in 2008 and raised a total of $53 million till date. The latest funding gave it an approximate valuation of $160 million. Zomato is now present in 40 cities across 11 countries and provides in-depth information about 197,000-plus restaurants. Interestingly, online food ordering and table booking service JustEat.in (originally started as Hungry Zone in 2006 but was later acquired by UK-based JustEat) recently raised an undisclosed sum from global investment firm Axon Partners Group and private equity firm Forum Synergies India.

5. Komli Media - eyeing expansion: Mumbai-headquartered digital advertising firm Komli Media recently raised $30 million in a fifth round of funding, again from a clutch of investors including the private equity fund Peepul Capital and existing investors Norwest Venture Partners, Nexus Venture Partners, Helion Venture Partners and Draper Fisher Jurvetson. With this round, Komli has now secured over $90 million in private equity investment. The company will use the funds to strengthen its position in the Asia-Pacific and invest further in technology, especially in data analytics, among other things. Since 2011, Komli has bought six companies. It now employs over 400 people and has 18 offices in India, Australia, New Zealand, South-east Asia, the Middle East, Hong Kong and North America. 6. Druva Software - getting big: Data protection software provider Druva raised a third round funding of $25 million from Silicon Valley investment firm Tenaya Capital and existing investors Sequoia Capital and Nexus Venture Partners. With this round, the company has received a total of $42 million in venture funding. Druva had secured $5 million from Sequoia back in 2010 and another $12 million from Nexus in 2011. The new funding will support continued R&D, expanded global sales and marketing with focus on Belgium, Luxembourg, Australia and Singapore, and expansion of its cloud infrastructure to support new deployments by large enterprises. The latest deal values the five-year-old firm at around $120 million. Druva's flagship is its in Sync platform, an integrated suite of endpoint data protection and governance solutions for enterprises. As of now, the company has 2,100 customers and protects 1.7 million endpoints across 76 countries. It has offices in Pune, California, the UK and Singapore, and boasts a client list including the US Army, NASA, Nikon, Deloitte, PwC and Tesla, and universities such as Stanford and Berkeley, among others.

Indian E-com Players Are Raising Big Money; These 5 Takeaways can help you understand whats changing
E-commerce in India is once again grabbing the headlines and this time, for all the right reasons. Bangalore-based Myntra, arguably India's largest standalone fashion e-tailer, has recently closed a funding round worth $50 million from an investor consortium led by PremjiInvest, the family office of the Wipro chairman Azim Premji. Myntra is also in talks with a clutch of investors to raise an additional $40 million at a higher valuation, according to an Economic Times report. So far, the e-commerce firm has raised $125 million in risk capital funding. Another fashion e-tailer that is also raising big money is Gurgaon-based Jabong.com, which is backed by Berlin-based Rocket Internet GmbH - a venture arm of the Samwer brothers. The e-commerce firm is reportedly raising a fresh round of equity funding worth $100 million, of which it has already received $27.5 million from the British development finance institution CDC Group Plc. All this is good news for the cash-strapped Indian e-commerce segment. So we have taken a close look at the recent fundraising by the Indian e-commerce players and identified five key trends that seem to be prevailing. Will they rule the fundraising scenario and determine the parameters of growth throughout 2014? Let us have a quick look. Growing big is the key priority E-commerce start-ups in India are finally coming of age and looking beyond the quickest possible exits. When Myntra closed $50 million in funding a couple of days ago, the company was immediately approached by its bigger rival Flipkart who had reportedly come up with an acquisition offer worth $200 million. According to a TechCrunch report, e-commerce giant Amazon had also approached Myntra but the details of the proposed deal are not yet available. Although rumours were rife that Myntra could be considering either of the deals as part of a bigger strategy, the e-tailer has decided to stay off the exit route. In fact, its ongoing talks for an additional round of funding worth $40 million clearly indicate that the company has in place some well-thought-out growth plans and big ones at that. The only other reason for back-toback funding is to raise the valuation but at this point, Myntra doesn't look like it is on the block. Neither has it decided to quit in a hurry like redBus.in did last year. India's largest bus ticketing firm was acquired by the ibibo Group for around $125 million but the sale cut short a successful entrepreneurial journey that could have become a $500 million business in terms of revenue and could have achieved a $1 billion valuation. As for Jabong, the very fact that it is backed by Rocket Internet may tell the industry insiders a different story. Rocket is known in the market for its fast and furious build-and-sell business module, and the start-ups are essentially replicas of successful US businesses. But the kind of funding Jabong is raising right now shows that the company is in no hurry to down the shutters in India even though two of its four co-founders have recently left the company. Jabong started

its India operations in 2012 and competes with key e-com players such as Flipkart, Myntra, Snapdeal and Amazon India, among others.

Only core expertise matters Internet giant Google has already given us a case in point when it sold Motorola Mobility to Lenovo for $2.91 billion, less than two years after paying $12.5 billion to acquire it. The deal is not a total financial loss as Google has managed to keep patents worth billions of dollars and expects to turn Lenovo into a manufacturing unit for its Android OS. But selling Motorola is a sure indication that Google should have focused more on its core competencies - search, software and selling ads - instead of developing hardware. You will find a similar case here as Jabong has reportedly sold its logistics arm JaVAS (Jabong Value Added Services) to Gurgaon-based QuickDel Logistics as part of its business restructuring and funding exercise. Jabong co-founder Praveen Sinha has also confirmed to the media that JaVAS is now an independent entity. However, that brings us back to the basic question. Should companies try and provide end-toend solutions to ensure a complete customer experience or should they focus on core competencies and leave the rest to the experts in those fields? We particularly raise this question as many Indian e-commerce firms are currently focusing on proprietary payment gateways and customised logistics services in a bid to propel their services to the next level. However, such services can actually make you lose money unless a company is catering to a customer base as vast as eBay or Amazon. After JaVAS, the writing is definitely on the wall. The bells and whistles can always come in later, but the key focus must be core competencies. Of late, even Apple seems to be falling in this trap - its newest hardware products have 'n' number of incremental features but real innovations seem to be eluding the iconic company.

Investors showing better risk appetite India's e-commerce market is projected to grow sevenfold to $22 billion in the next five years, and investors, both national and global, want to have a piece of the pie. According to Rahul Khanna, managing director of the venture capital firm Canaan Partners (India), e-commerce players in India (and everywhere else for that matter) require very deep pockets to scale up to the level of breaking even and hitting profitability. In this space, sales margins are typically low; volume is high, and logistics & back office investments only become viable when companies are catering to a very large customer base. Consequently, follow-on rounds are extremely crucial for sustainable growth. Now that big institutional investors like PremjiInvest and UK-based development finance institution CDC Group are entering the arena, the much-needed cash burning is sure to propel growth to the desired level.

"E-commerce is fast maturing in India and that's the main reason global investments are flowing in," says another analyst. "When big players like Amazon show interest (the e-commerce giant has reportedly approached Myntra), investors are quick to sense the tremendous growth potential lying here," she adds.

Forget the buzz you are creating; it's result time now Analysts, who have followed the course of events over the past few weeks, also point out another interesting trend. Be it Myntra or Jabong or other up-and-coming e-commerce businesses, it's their growth quotient that has attracted big funding. In other words, start-ups who are delivering in a big way will get the valuable growth dollars as investors are now looking beyond the buzz and focusing on business fundamentals and results. Companies must have the numbers - in terms of customer base, growth figures and brand leadership - to justify the big money they are raising. For instance, Myntra expects to more than double its gross sales to over $250 million by March 2015 and the fashion e-tailer's monthly gross sales could touch $20-25 million by April this year. Myntra is expected to end the current fiscal with more than $100 million in gross sales and it is targeting $1 billion in GMV by 20162017. Flipkart, which raised $360 million last year at a valuation of about $1.6 billion, is also projecting a GMV of $1 billion by 2015. Jabong, too, has aggressive growth plans and the latest round will be used to strengthen its supply chain infrastructure and enhance its technology platform. According to industry sources, Jabong might have generated gross merchandise sales of $100-150 million for the fiscal 2012-13. Other key investments in the Indian e-commerce space since 2013 included online marketplace Snapdeal raising about Rs 300 crore and baby care portal Firstcry bagging Rs 92 crore.

Inventory, private labels are adding value With the lone exception of Snapdeal that runs a 100% marketplace, most of the big e-commerce entities in India are flourishing on a hybrid model - a strategic mix of inventory, private label and marketplace. In fact, Jabong has been doing all three for some time now, although a bit discreetly, and it could be now pushing hard to extract every penny from each of these categories. Myntra, on the other hand, focuses on both inventory and private label, with the share of private labels rising rapidly. A couple of years ago, the e-tailer acquired Exclusively.in Inc., the company behind the private label brand Shersingh.com and the fashion site Exclusively.in, in a cash-cumequity deal. Myntra is reportedly eyeing more private labels to add to its portfolio as the margins are pretty high in this segment and add substantially to the profits.

Bottom line: Is it a volatile situation? In one of her latest blogs in Entrepreneur.com, entrepreneur-writer Erika Trautman has nicely summed it up. "No matter how great the idea, if your start-up doesn't create hard and fast results with analytics, targeted business solutions and mobile integration, it won't survive in 2014. Launching a start-up can't just be about how cool your product is. No business can subsist off just buzz and Press. This year, start-ups must focus on business fundamentals and start emphasising partnerships that generate results." Can the Indian e-commerce players innovate, scale up and deliver (as the takeaways so amply illustrate) to justify the trust investors are now putting in them? Will there be new ventures to take up the gauntlet? Let us wait and watch.