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McClatchy-Tribune  06/20/2014 8:14 AM ET
India's e-commerce boom [Mint, New Delhi :: ]

June 20--BANGALORE -- A year ago, Mukesh Bansal, the chief executive officer (CEO) of India's largest online fashion retailer, started the process of raising a new round of funds by reaching out to several investors, including Premji Invest, SAIF Partners and others.

At that time, Myntra was facing aggressive competition from Jabong, backed by Germany's e-commerce conglomerate Rocket Internet, as well as India's largest e-commerce firm,, both of which challenged Myntra's dominance of online fashion sales by offering deep discounts (30-40% on a daily basis, in most months).

The battle was obviously being closely watched by the investors Myntra was courting.

"The feedback from most of them was: we are interested and we like what you are doing, but not now. But we needed money then; so 'not now' was not very helpful. We had cash till early 2014, so we were not in imminent danger of running out but, still, six months of cash is nerve-wracking," Bansal said.

Apart from Premji Invest, the private-equity arm of billionaire technology entrepreneur Azim Premji, all other investment firms shied away from Myntra, reflecting the bearish investor sentiment on India's e-commerce business of the previous two years.

After rigorous due diligence and discussions that lasted as long as six months, Premji Invest finally agreed to lead a $50 million fund raise into Myntra in January.

Barely four months later, things have turned upside down -- or rather, downside up -- not only for Myntra, but for India's e-commerce businesses in general.

In May, Myntra agreed to be bought by Flipkart in India's largest ever e-commerce deal. Myntra fetched an estimated value of more than $330 million, significantly higher than the $200 million valuation it received in January.

At least 10 e-commerce firms, including Flipkart, Snapdeal, Jabong, Pepperfry and Limeroad, have announced fund-raisings over the past two months and investors and analysts say that several other sites such as online marketplace Shopclues and fashion retailer Yepme are likely to receive money within the next six months.

Flipkart said on 26 May that it received as much as $210 million, mostly from Russian firm DST Global Solutions Ltd, which has backed companies including US-based Facebook Inc. and Twitter Inc. as well as China's Alibaba Group. The online retailer has now received $770-780 million since starting out in 2007, including $360 million last year.

A few days before Flipkart's latest fund raise, online marketplace Snapdeal announced that it raised $100 million from new investors. including Temasek Holdings Pvt. Ltd, BlackRock Inc. and Premji Invest. It had raised $133.7 million less than three months ago.

The fund-raising by Flipkart and Snapdeal reflects both the increasing amounts of capital required to build a national e-commerce business as well as the strong revival of investor appetite for India's fledgling Internet firms.

Explosive growth

"India is going to be the third biggest e-commerce (market by value) in the world (after the US and China) going forward," Flipkart CEO Sachin Bansal said. "It's a capital-intensive business. If you want to build a large e-commerce business, capital is required."

Online retail is worth $3.1 billion, or 10% of the organized retail market, and is estimated to grow to $22 billion, or over 15% of the organized retail market, in five years, according to a November 2013 report by brokerage firm CLSA.

The revival of investor interest comes after two years, when most of the venture capital firms steered clear of local e-commerce companies.


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