Indian E-com Players Are Raising Big Money; These 5 Takeaways Can Help You Understand What’s 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-to-back 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-to-end 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 2016-2017. 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-cum-equity 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.

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