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BW Businessworld

A Toast For The VCs

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When Sachin Bansal and Binny Bansal, founders of online book store Flipkart, set out to raise their first round of venture capital (VC) in 2009, all but two VC firms turned them down. Today, the Bangalore-based e-commerce startup is the toast of the VC fraternity.

Since 2009, it has raised $31 million in funding, from Accel Partners and Tiger Global. But this is small change compared to the $150 million that the company is reportedly in line to raise from private equity investor General Atlantic Partners.

When BW asked CEO Sachin Bansal about the reported fundraising, his response was a predictable, "We are not commenting on speculation on any future rounds of funding."

Further enquiries within the VC community reveal that a deal is indeed in the offing though the quantum raised will likely be $100 million or less. Even so, it will still be the single largest investment in an Indian e-commerce startup till date.

If the company does raise the reported $150 million, it will do so at dizzying valuations. For the financial year ended March 31, 2011, the company's cumulative revenues, as filed with the Registrar of Companies, were in the region of Rs 50 crore ($11.22 million), says Bansal. E-commerce startups have been wildly pursued by VC firms in the first six months of calendar year 2011, with over $200 million already invested. Concerns of an investment bubble are not unnatural.

That makes Flipkart's ability to execute and scale very important. "Flipkart's success lies in its core technology and execution," says Prashant Prakash, partner at Bangalore-based Accel Partners, the first VC firm to back the company. Tiger Global came in later with $30 million over two tranches. In just four years, Flipkart, which currently offers over 10 million book titles, has sold 2 million items across categories and claims Rs 1 crore in sales per day. It has also diversified its revenue base, with book sales contributing less than 50 per cent. The remainder, claims the company, comes from categories such as music, consumer electronics and personal care.

These numbers have been built up using a two-pronged killer go-to-market strategy. First, while the company positions itself as an ecommerce company, more than 60 per cent of its transactions are cash-on-delivery.

Online payments are still not as popular with consumers in India as they are in markets such as the US and Europe. However, this also means that the company has to spend more on field staff and logistics to deliver merchandise and collect payments. It currently employs 2,500 people overall.

Second, the company offers an average 25 per cent discount on the cover price of every book its sells. Bansal says that the company's low-cost, online model allows it to absorb the discounts without hurting margins.

The next eight months will see Flipkart's founders aggressively ramp up its technology, supply chains and logistics and customer support and marketing. Their ambitious target is Rs 600 crore ($133.9 million) revenues by March next year. The speculated $150 million being raised on the back of these growth projections. It could be the deal that defines the future of e-commerce in India.