Bengaluru: Online marketplace ShopClues has raised Rs50 crore in venture debt from InnoVen Capital, in a rare instance of a home-grown unicorn opting for venture debt.
The fresh capital infusion comes over 15 months after ShopClues, owned by Clues Network Inc, entered the so-called unicorn league by raising $100-140 million in January 2016. That money was raised from Singapore’s sovereign wealth fund GIC Pte Ltd, and existing investors Tiger Global Management and Nexus Venture Partners, at a valuation of over $1.1 billion.
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Start-ups typically raise debt when they are running short of cash, for working capital and to fund acquisitions, among others.
ShopClues said it raised debt primarily for day-to-day business activities.
“A company which is getting close to profitability has the option to raise either equity money or debt. Equity will lead to dilution, but you can pay off debt through your balance sheet. Debt is a good instrument to meet working capital requirement or any gaps to plug to achieve profitability," ShopClues chief executive Sanjay Sethi told Mint.
“We are profitable on a contribution margin level, but need to achieve a scale where we can cover our fixed costs. Our burn is reducing consistently. Hence, debt comes into play so that we can scale rapidly and reach profitability," he added.
Contribution margin is the selling price minus variable costs, a metric that assesses whether companies can meet the variable cost with revenue.
According to research firm Tofler, ShopClues clocked revenues of Rs179 crore for the year ended 31 March, 2016, while losses stood at Rs383 crore. The company’s burn rate is far lower than bigger rivals such as Flipkart, Amazon and Paytm.
Some analysts are still doubtful about the viability of ShopClues. India’s e-commerce market nearly stagnated at $14.5 billion in 2016 compared with $13 billion the year before, according to consulting firm RedSeer Management Consulting Pvt. Ltd.
Analysts had earlier predicted that India’s e-commerce sales will reach $48-100 billion by 2020, but now those estimates look far fetched. In a market that will grow at a much lower rate than previously thought, many now believe that so-called horizontal online retailers such as ShopClues will struggle to prove they are viable. SoftBank-backed Snapdeal (Jasper Infotech Pvt. Ltd) is likely to sell itself to Flipkart, Mint reported on 2 May. ShopClues also shares Tiger Global as a common investor with Flipkart, prompting speculation that the US-based firm may arrange a merger between the two at some point.
For now, however, at least some investors like ShopClues because it is not running the same race as Flipkart and Amazon. The firm is focused on taking unstructured categories online and has a largely different customer base from the two giants.
“A few things stand out for ShopClues. Their customers are not the ones frequently buying on Flipkart and Amazon. There is a huge market beyond the metros and ShopClues is going after them. Also, the management has been prudent on how they use the cash. They haven’t raised anywhere close to the capital some of the larger companies have used and consumed to get where they are today. It doesn’t need hundreds of millions of dollars," said an executive at a venture capital firm on the condition of anonymity.
“There are two aspects to an IPO, one is when the business is ready and the other is, if the market is ready. Currently, the management is focusing on the former by cutting down on costs. Beyond that, you have to wait to time the market," this person added.