BackIndia e-commerce gets latest push from SoftBank
SoftBank invests in Snapdeal and Ola cabs; CEO Masayoshi Son says bank will deploy significant capital in India over the next few years
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New Delhi: SoftBank Group, the largest shareholder in Chinese e-commerce giant Alibaba Group Holdings Ltd, made its biggest bet yet on Indian Internet companies, investing $837 million in e-commerce marketplace Snapdeal.com and online taxi booking service Ola, and pledging to invest a total of $10 billion over a decade in the country.
SoftBank, whose 32% stake in Alibaba is currently valued at about $79 billion, has invested $627 million in Snapdeal.com, making the Japanese company the largest investor in the online retailer.
It also led an investment of $210 million for a significant stake in Ani Technologies Pvt. Ltd, which runs the taxi booking service Ola.
The firm’s investments in Snapdeal and Ola mark the latest peak for India’s fledging e-commerce industry. More than $3 billion has already been invested in e-commerce this year, after a two-year period when most venture capital firms had steered clear of online retailers, according to Mint research. Snapdeal and its rivals—Flipkart and Amazon India—are topping up their war chests, allowing them the flexibility to offer deeper discounts to buyers and pursue aggressive promotions for a bigger slice of the fast growing e-commerce market in Asia’s third-biggest economy.
“SoftBank’s investments clearly show the massive potential of e-commerce in India. Now it is just about how fast it can grow and how much disruption can it cause here," said Rachna Nath, executive director at consulting firm PwC India. “We’re also increasingly seeing investors move toward e-commerce rather than offline. Those who have offline investments are struggling to find buyers while consumers continue to adopt online shopping in a big way."
Apart from the explosive sales growth of Flipkart and Snapdeal, one of the main reasons for the revival of investor interest is the record initial public offering (IPO) of Alibaba Group. After going public in September, Alibaba is valued at about $247 billion. It has surpassed Amazon.com Inc. and eBay Inc. to become the world’s most valuable e-commerce company. The IPO made SoftBank founder and chairman Masayoshi Son the richest man in Japan.
Snapdeal, which is run by Jasper Infotech Pvt. Ltd, has also raised a “significant" amount from existing investors, the company said in a statement on Tuesday without disclosing the amount or the names of the investors.
“This is a great validation of our strategy. We will continue to build the largest and most trusted marketplace for businesses to sell online in India," Snapdeal chief executive Kunal Bahl said. “We don’t hold inventory, we don’t do private label because we don’t want to compete with our sellers and we will continue to do that. That is what has resonated with a partner like SoftBank because they understand the value of focus.“
Snapdeal plans to use the capital to improve technology and supply chain management. It also plans to open technology development centres in Bangalore, Hyderabad and Pune and will double its technology team to 1,000 people by next March.
SoftBank’s Son is betting that the rapid increase in Internet access in India combined with rising sales of low-cost smartphones will drive sales of online retailers as millions of Indians will be able to use their phones to buy items ranging from clothes to phones.
The number of people with access to the Internet in India rose to 238.71 million last year, according to government data shared with Parliament in February.
“Ten years ago, China was the best opportunity and now India has the best opportunity," Son, 57, on his first visit to New Delhi in close to a decade, said in an interview on Tuesday. “We believe India is at a turning point in its development and have confidence that India will grow strongly over the next decade. As part of this belief, we intend to deploy significant capital in India over the next few years to support development of the market."
New Delhi-based Snapdeal had already raised $233.7 million earlier this year in two rounds from eBay, Temasek Holdings Pvt. Ltd, Blackrock Inc. and PremjiInvest. Former Tata group chairman Ratan Tata also bought a small stake in Snapdeal in August.
The latest investments in Snapdeal follow a $1 billion fund raising by larger rival Flipkart in July and a $2 billion capital commitment into Amazon India by its parent Amazon.com Inc., also in July.
The latest round of funding values Snapdeal at slightly less than $2 billion, according to people close to the deal.
Flipkart, which has raised $1.8 billion since its inception in 2007, is currently valued at $7 billion, based on the valuation accorded to it in the last fund raising.
Much of these funds are deployed in massive discounting and advertising. E-commerce has turned into a huge discounting war led by Flipkart, Snapdeal and Amazon India, which are engaged in an aggressive battle to add new customers as they seek to expand market share.
According to documents with the Registrar of Companies, Snapdeal.com posted a loss of ₹ 264.6 crore on revenue of ₹ 168.1 crore in 2013-2014.
Snapdeal was founded by Kunal Bahl and Rohit Bansal as a daily deals platform, selling coupons to groups of customers (similar to the Groupon model). It converted to a marketplace in late 2011, first offering services and then adding a wide range of products including apparel, books and electronics from third-party merchants.
A marketplace provides a sales and technology platform to other sellers. Indian law does not allow foreign direct investment in e-commerce, but places no such restriction on marketplaces. India’s e-commerce market, excluding travel services and tickets, is worth $3.1 billion and is estimated to grow to $22 billion in five years, according to CLSA’s November 2013 report.
Snapdeal claims to offer more than 5 million products across 500-plus categories on its platform with over 25 million registered users and 50,000-plus merchants. The company aims to expand its merchant base to one million in the next three years, it said in a statement.
SoftBank Group, which comprises of SoftBank Corp. and its subsidiaries that offer a range of mobile communications, fixed-line communications and Internet services around the world, is also the latest to invest in an online taxi-booking service. Ola’s other investors include Sequoia Capital, Tiger Global Management and Steadview Capital.
Ola, which competes with market leader Meru Cabs, TaxiForSure and Uber, received more than $40 million earlier this year and the latest fund raising gives it more firepower to cut prices, advertise heavily and expand in to more cities.
“Ola is at the forefront of the mobile internet revolution in India and SoftBank as an investor and a strategic partner with its global network, brings in a lot of relevant experience and knowledge of this domain," said Bhavish Aggarwal, co-founder and CEO. “We will continue to build towards our vision of transportation as a seamless and ubiquitous service in every corner of the country and focus on the driver ecosystem to enable micro entrepreneurship and skill development at scale."
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