money, funding, ian

A report published by Economic times today, indicates that Flipkart and Snapdeal, one of India’s first unicorn startups, are eyeing fresh funding rounds, to the tune of $1 Billion from existing investors. These rounds come on the back of approaching festive season, wherein e-commerce retailers offer heavy discounts, thus incurring massive losses — and hence the need of fresh funding.

However, while these funding rounds may eventually happen, investors have now started to look at valuations they want to peg to Flipkart or Snapdeal. While Flipkart is looking at a staggering $15 Billion valuation post funding (the largest for an Indian startup till date), Snapdeal is looking at a $5 Billion valuation post funding.

Flipkart’s current set of investors, who have the capacity to fuel that required $1 Billion round, include Tiger Global and DST Global while Snapdeal is in talks with Chinese chip manufacturing giant Foxconn, and another Chinese behemoth Alibaba.

However, ET points out, citing sources, that while Foxconn has already agreed for a $600 Million funding for Snapdeal at its desired $5 Billion valuation, Alibaba is hesitant about that much valuation, and wants the same to be scaled down to $3.5 Billion.

Obviously, all of the involved parties declined any official comments on the same.

The Analysis

This news though, if true, is an interesting piece of hint towards how investors are now vary of these speculated bubbled up valuations. Both Flipkart and Snapdeal are yet to come even close to being profitable, and while the former is looking towards an IPO post this current round, Snapdeal might still have to rely on additional funding to match up Flipkart’s GMV and scale of operations.

Also, Alibaba is already a significant investor in PayTM, with its Ant Financial services division announcing a massive $575 Million investment into PayTM to bolster its e-commerce division. It thus becomes all the more interesting on how Alibaba plays out it investment strategy for Snapdeal, since its a significant player in a rival e-commerce platform, which as per multiple reports, is performing better than Snapdeal.

Moreover, while valuations are a sign of worry, both Flipkart and Snapdeal will have already start seeing growing competition from more established, heavily funded traditional retail players. Other smaller e-commerce players like Shopclues, Infibeam (which filed for an IPO recently) and more niche ones like CraftsVilla, BlueStone etc. are already there.

We already have Amazon pumping in as much as $5 Billion into its Indian business, and looking at its just announced earnings report, Amazon has enough cash to up the investment and fund its India operations more aggressively.

Secondly, regional offline retail players like Tata and Reliance, are already set to debut their own e-commerce platforms into this currently $3 Billion e-commerce market, which set to rise to a staggering $50 Billion by 2020. And the amount of cash they can put in — well, we all are well aware of their capacity to invest.

Its definitely a difficult road ahead for both Flipkart and Snapdeal. And why specially for them ? Because they have been one of the oldest players in this field and have constantly relied on heavy funding rounds and deep-discount model to get users. And of course, even being that old, they are yet to turn profitable.

Let’s see how this pans out. Whichever way it goes though, it is bound to be interesting.

Updated with GMV comparison chart.

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