Snapdeal’s cash squeeze adds to funding pressure

Snapdeal switches to cash-conserve mode after talks with SoftBank on bridge round funding get deferred


Snapdeal’s dwindling cash reserves crimp its ability to compete with e-commerce rivals Flipkart, Amazon and Paytm and also raise questions about how long it can survive without fresh capital. Photo: Aniruddha Chowdhury/Mint
Snapdeal’s dwindling cash reserves crimp its ability to compete with e-commerce rivals Flipkart, Amazon and Paytm and also raise questions about how long it can survive without fresh capital. Photo: Aniruddha Chowdhury/Mint

Jasper Infotech Pvt. Ltd, which runs Snapdeal, had about Rs1,100-1,200 crore cash left in the bank and Rs300-400 crore at its payments unit Freecharge at the end of 2016, making it critical for the company to secure funds immediately, according to official documents and three people familiar with the matter.

Snapdeal has gone into cash-conserve mode after talks for a bridge round of funding with existing investor SoftBank were deferred because of differences over valuation, the three people cited above said. Snapdeal is still in talks with at least two other existing investors, the people said, declining to be identified.

Snapdeal’s dwindling cash reserves crimp its ability to compete with rivals Flipkart, Amazon and Paytm and also raise questions about how long it can survive without fresh capital.

Snapdeal had close to Rs3,278 crore in cash and cash equivalents as on 31 March 2016, show official documents with the Registrar of Companies (RoC) and business research platform Tofler. Since then, it has racked up an average monthly burn of about $25 million (about Rs160 crore), according to the people cited above. This number includes the cash spent by Freecharge over the past nine months of the financial year ending March 2017. Snapdeal also pumped Rs390 crore into Freecharge in December, documents filed with the RoC show.

While Snapdeal’s monthly expenses are significantly lower than what they were in 2015, the nature of the e-commerce business requires the firm to keep spending and replenishing its coffers by raising fresh capital. The latter has proven difficult for Snapdeal, as investors shy away from backing a company that is a distant No. 3 to Flipkart and Amazon.

ALSO READ | Flipkart outsells Amazon in December, January on bumper smartphone sales

In the current fiscal, Snapdeal has seen an infusion of only $21 million, according to RoC documents. In comparison, the company raised $1.4 billion in 2014 and 2015.

“We are adequately capitalized. On our journey towards profitability, it is imperative that we continue to drive efficiency in our business, which enables us to pass on the value to our consumers and sellers,” a company spokesperson said in response to Mint’s email query.

In August 2016, Snapdeal chief executive Kunal Bahl said the company would turn a profit within two-three years. But even through 2016, Snapdeal was still spending heavily. In September and October alone, Snapdeal spent close to Rs200 crore on advertising and marketing in an effort to reposition itself.

After it failed to raise a large round of funds in late 2015, Snapdeal had to accept it couldn’t spend as much as Flipkart and Amazon. Consequently, it cut expenses and its monthly sales plummeted. Since its brand makeover, Snapdeal has been trying to position itself as a quality service provider. However, its top priority now is to conserve cash and secure funds.

Starting late January, the company has slashed discounts and stopped working with affiliate networks driving traffic to its website, said the people cited above. It has quietly reduced its staff, a process that is ongoing, and has also closed Shopo (a shopping platform).

Snapdeal, which had a headcount of close to 8,000-9,000 at the beginning of 2016, was left with about 4,500-5,000 people on its payroll in June 2016. This number seems to have come down to 3,800-3,900 as of December 2016-January 2017, said the people mentioned above.

The Snapdeal spokesperson said reports of headcount reduction are “purely speculative in nature”.

Last week, co-founders Kunal Bahl and Rohit Bansal wrote to all employees, “It is important to analyse and curtail expenses, which are contributing neither to our efficiency, nor to the customers or sellers experience. We encourage all of you to take tough decisions if you need to, in doing the right thing for our goals around profitability”.

More From Livemint