Flipkart may seek help of investment banks to raise funds
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Bengaluru: After raising cash with relative ease at successively higher valuations in most of its funding rounds, online marketplace Flipkart is now considering appointing an investment bank for the first time in years to try and attract new investors to its next round of funding, four people familiar with the matter said.
India’s most valuable Internet company has held talks with several investment banks including Goldman Sachs Group Inc. as it decides on getting help to raise funds, the people cited above said on condition of anonymity. Over its past four funding rounds, in which the company together raised some $2.6 billion, Flipkart didn’t need the services of an investment bank because of its unrivalled status as India’s largest e-commerce firm and one of the world’s most attractive e-commerce start-ups.
Now, with Amazon India breathing down its neck, new investors are much more wary of backing Flipkart, prompting the company to explore using a blue-chip investment bank. The company hasn’t yet decided whether it will finally give the mandate to a bank or go on its own, the people said.
Flipkart, including its fashion sites Myntra and Jabong, has a burn rate of roughly $40 million per month, the people cited above said. At that rate, the company has enough cash to last 18-20 months, they added.
However, as its cash pile reduces, the company’s ability to dictate terms to new investors will decline, prompting its founders Sachin Bansal and Binny Bansal and its current investors including Tiger Global Management to seek a new round of funds imminently, the people said.
For its next round, Flipkart’s preferred valuation is around $15 billion, the four people cited above said. However, venture capital investors say that Flipkart will struggle to get that valuation because of Amazon’s continued expansion and the belief in investor circles that Flipkart is overvalued.
If Flipkart hands out its fund-raising mandate to an investment bank, it will mark a big win for investment banks that largely missed out on the large fund-raises by Indian Internet companies in 2014 and 2015. Investors were so eager to get into then high-flying Indian start-ups that a majority of funding rounds were done directly with no bankers required. (Citigroup’s involvement in the $575 million Paytm-Alibaba deal was an exception)
This year, however, the funding slowdown has forced many Indian consumer Internet start-ups to approach investment banks for help with fund raising.
Flipkart didn’t respond to an email seeking comment. Goldman Sachs declined to comment.
Mint reported on 9 October that Flipkart will hit the market to raise $500 million-$1 billion in fresh funds before the end of the year. The company last raised cash in the middle of 2015 from existing investors led by Tiger Global at a valuation of $15 billion.
Since then, however, Flipkart’s three big bets on an app-only push, high-profile leadership hiring and the marketplace model have faltered; arch-rival Amazon India has caught up with it; a worrying number of leadership changes left the company in turmoil in early 2016; and its valuation was marked down by as much as 40% by some of its own investors.
To be sure, Flipkart has shown clear signs of turning around under chief executive Binny Bansal and Kalyan Krishnamurthy, the former Tiger Global executive who now effectively runs much of the company. India’s e-commerce poster boy comfortably outsold Amazon in the key festive season month of October, possibly getting a springboard to take the fight back to the American firm.