Snapdeal sale still in limbo as cash reserves dwindle
New Delhi/Bengaluru: Struggling online marketplace Snapdeal needs to urgently seal a funding round or sell itself to larger rivals Flipkart or Paytm, as fast-depleting cash reserves leave it with a runway of less than four months, according to three people close to the development.
This could put Snapdeal’s board, which has struggled to reach a consensus over its valuation and sale, under higher pressure to reach an agreement.
In February, Mint reported that Jasper Infotech Pvt. Ltd, which runs Snapdeal, had about Rs1,100-1,200 crore left in the bank as of December. Since then, the company has been put up for sale by its largest investor, SoftBank Group Corp.
Although Snapdeal had reduced its cash-burn to less than $10 million a month during the last 60 days, it has handed out cash payments to some of the companies it acquired in the past few years, including Unicommerce Pvt. Ltd, a warehousing software provider, the people cited above said on condition of anonymity.
In January, the company spent heavily on advertising and discounts for a sales event, the people said. Then it paid retention bonuses to some senior employees and spent cash on a television campaign to promote its fashion business, they added.
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Snapdeal also committed $20 million to its payments arm Freecharge in March. Since January, Snapdeal has cut hundreds of jobs but even these involved making severance payments to some of the employees who were let go.
All of these expenses have led to a sharp decline in the company’s cash reserves from the start of the year.
“A deal has to be closed soon, one way or the other. The company doesn’t have much cash left. It can run operations for another 3-4 months but after that it’s tough to see how it’ll survive,” said one of the people cited above.
SoftBank, the largest investor in Snapdeal, has been trying to sell the company to larger rivals Flipkart or Paytm. But the deal has been stalled by Snapdeal’s other board members, Nexus Venture Partners, Kalaari Capital and the company’s co-founders Kunal Bahl and Rohit Bansal, all of whom have demanded that SoftBank buy out their shares in order for them to approve a sale.
Mint reported on 31 March that Kalaari Capital and Nexus, which have veto rights on board matters, had disagreed with SoftBank over the company’s valuation in a potential sale or funding round.
While SoftBank has agreed to buy the stakes of Kalaari, Nexus and Snapdeal’s founders, valuation remains a bone of contention. In the last 20-25 days, SoftBank has managed to get Kalaari’s support while it is yet to sway the founders and Nexus.
Nexus, which has invested close to $45-48 million in Snapdeal, is seeking a near-2x exit. Snapdeal is the largest investment for Kalaari and Nexus, and a bad deal could be damaging for the two home-grown venture capital firms.
The two founders, on the other hand, are demanding $30-40 million each to agree to a sale. This does not include the management payouts.
According to a fourth person, who also sought anonymity, the founders are also seeking to safeguard the interests of existing employees and senior management. They are seeking a minimum guaranteed period of employment or severance payments for existing Snapdeal employees.
SoftBank did not reply to an emailed query from Mint.
“Snapdeal has been able to improve its monthly Ebitda (earnings before interest, tax, depreciation and amortization) by nearly 80% over the last 18 months as per the guidance of the Board to drive towards profitability,” a Snapdeal spokesperson said.
SoftBank currently owns 33% of Snapdeal, while Nexus owns roughly 10% and Kalaari nearly 8%, according to documents filed with the Registrar of Companies. Chief executive Bahl and chief operating officer Bansal together own less than 6.5% of the company after selling part of their stake.