The Snapdeal-Flipkart deal is a win for founders Kunal Bahl (left) and Rohit Bansal as they were against SoftBank’s push for Snapdeal sale to Flipkart from the very beginning. Photo: Pradeep Gaur/Mint
The Snapdeal-Flipkart deal is a win for founders Kunal Bahl (left) and Rohit Bansal as they were against SoftBank’s push for Snapdeal sale to Flipkart from the very beginning. Photo: Pradeep Gaur/Mint

Snapdeal, Flipkart, Ola founders look to claw back lost ground from investors

Sachin and Binny Bansal of Flipkart, Ola's Bhavish Aggarwal and Snapdeal founders Kunal Bahl and Rohit Bansal are fighting hard to keep control of their start-ups

Bengaluru: At two of India’s iconic Internet start-ups, Flipkart and Snapdeal, the founders are fighting hard to keep control of their companies or striving to come back in more prominent roles after a period in which two powerful investors, Tiger Global Management Llc. and SoftBank Group Corp., called the shots at these companies. At another large start-up Ola, the founders have secured stronger rights against SoftBank to protect themselves against potentially hostile action by the largest shareholder in the cab-hailing firm.

On Monday, Snapdeal founders Kunal Bahl and Rohit Bansal won the battle to keep the firm independent as it walked away from talks to sell itself to Flipkart. The decision to end talks with Flipkart marked a win for the Snapdeal founders, both of whom were against the sale to their arch-rival from the start. Bahl and Bansal have, for now, won the bitter boardroom battle against SoftBank, Snapdeal’s largest investor, which was pushing for the sale.

Mint reported on 11 July that Flipkart co-founders Sachin and Binny Bansal may return to more prominent positions following the company’s fundraising in April and a proposed deal with SoftBank, both events that are likely to reduce the influence of Tiger Global, Flipkart’s largest shareholder.

Flipkart founders Binny Bansal (left) and Sachin Bansal. Tiger Global Management is the biggest investor in India’s largest e-commerce firm.
Flipkart founders Binny Bansal (left) and Sachin Bansal. Tiger Global Management is the biggest investor in India’s largest e-commerce firm.

Starting January 2017, when Tiger’s representative Kalyan Krishnamurthy was named chief executive officer of Flipkart, he was firmly in charge of the online retailer. That state of affairs changed in May as the Bansals orchestrated the removal of Flipkart’s chief operating officer Nitin Seth, who was known to be close to Krishnamurthy. The Bansals have also been playing more active roles at Flipkart since then.

Mint reported on 18 May that Ola (ANI Technologies Pvt. Ltd) has made sweeping changes in its shareholder terms, strengthening the rights of its founders and restricting those of SoftBank.

Ola founder Bhavish Aggarwal. SoftBank is the largest investor in the Indian cab-hailing firm.
Ola founder Bhavish Aggarwal. SoftBank is the largest investor in the Indian cab-hailing firm.

These three separate events at Flipkart, Snapdeal and Ola reveal the fault lines in India’s fledgling start-up ecosystem that has failed so far—with a few exceptions—to deliver attractive exits to investors.

In the go-go years of 2014 and 2015, when valuations of Indian Internet jumped manifold, critics warned that founders in India had diluted too much of their stakes in the hunt for higher and higher valuations. These entrepreneurs were left with single-digit ownership individually in their start-ups after raising billions of dollars in capital from Tiger Global, SoftBank and others.

Yet, some of India’s top entrepreneurs also received large pay-outs from investors. Flipkart’s Binny and Sachin have made hundreds of crores of rupees by selling their shares, while Snapdeal’s Bahl and Bansal, too, have made at least Rs300 crore in bonuses and share sales, three people familiar with the matter said.

These payouts were given to ensure entrepreneurs stay motivated enough to run the firms despite having little ownership left. Yet, Flipkart, Snapdeal and even Ola have failed to live up to investor expectations to varying degrees. Flipkart and Ola have seen their valuations drop by nearly a third from their peak in 2015 while Snapdeal has seen both its business and valuation collapse.

Tiger Global Management and SoftBank have together invested more than $5.5 billion in Indian start-ups and, over the past 18 months, have acted ruthlessly at times to protect their interests

The two investors hit hardest by the struggles of these start-ups are Tiger Global and SoftBank, which have together invested more than $5.5 billion in Indian internet companies. Over the past 18 months, Tiger and SoftBank have acted ruthlessly at times to protect their interests.

At Flipkart, Tiger practically took operational control of the company since last August while SoftBank blocked funding deals at Snapdeal and finally forced the company to put itself on the block. Indeed, the Flipkart-Snapdeal merger and an accompanying SoftBank investment deal with Flipkart were being pushed by these two investors primarily for their own benefit.

Now, the founders at Flipkart and Snapdeal are reasserting themselves. “Beyond a point, it’s very hard for any investor to act against the high-profile entrepreneurs. It’s different at smaller start-ups … but with the superstar founders—they have become such big names and have so much influence that no investor can call the shots completely against them," an entrepreneur said on condition of anonymity.

“I don’t see it as an us-against-them equation. Investors will do what is best for their financial interest. The equation with them keeps changing from time to time depending on the situation," another entrepreneur said, also on condition of anonymity.

In an interview on Saturday, Sachin Bansal declined to comment on the equation between him, Binny and Tiger.

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