Mumbai: Critics may cry hoarse over e-commerce companies continuing to burn cash without delivering profits. Yet the fact is that investors are pumping in more dollars into international e-commerce markets like India even as traditionally hot e-commerce markets like the US and China have seen a decrease in their share of funds since 2011.
While the much-awaited initial public offering of Chinese e-commerce firm, Alibaba.com, in New York may skew the picture further in favour of China, it is Indian e-commerce firms that are currently driving the funding towards international markets.
Much of the credit would go to bigger companies like Flipkart.com, India’s largest e-commerce company, which raised $1 billion on Monday, much more than the $865 million raised by all e-commerce companies across the world in 2009 when firms starting catching their breath after being hit by the Lehman crisis in 2008.
India has seen the largest rise in e-commerce funds when comparing the past two years (2012-13) with the same time period two years prior (2010-11), according to a 1 June blog by research firm CB Insights.
In 2009, of the $865 million pumped into global e-commerce companies, $627 million was invested in US-based companies alone—a 73% share of funding versus their international peers, according to the blog.
The following year, that funding share decreased to 62% despite a $500 million series D financing for Chicago-based Groupon in December 2010.
In 2011, Chinese online retailer JingDong raised $1.5 billion from Digital Sky Technologies, Tiger Global, and Wal-Mart, pushing the US Internet e-commerce funding share to just 50%.
In 2013, only 37% of global e-commerce funding went into US-based companies. The remaining of the total of $6,471 million was raised by international e-commerce firms.
The blog credited Flipkart, India’s largest e-commerce company “and the firm with the best shot at being India’s Amazon” as being the key driver of that growth.
Since its founding in 2007, Flipkart has raised over five rounds of venture capital, totalling $740 million since 2011. Its financing includes a $210 million Series F announced on 27 May.
The company’s investors include Tiger Global Management, Accel Partners, Digital Sky Technologies, and Iconiq Capital.
Flipkart’s latest $1 billion fund raising was co-led by existing investors Tiger Global Management and South Africa-based Naspers, and will be used “to make long-term strategic investments in India, especially in mobile technology”, the company said in a statement on Monday.
Flipkart bought rival Myntra in mid-May in the largest-ever e-commerce deal in India. The deal is expected to help Flipkart gain advantage in the fashion and fashion accessories segment which is Myntra’s core area and also the space where Flipkart failed to surpass the latter. Moreover, fashion is one of the fastest growing verticals in the e-commerce space.
It was again in May that another e-commerce company Snapdeal.com, promoted by New Delhi-based Jasper Infotech Pvt. Ltd, raised $100 million, mostly from new investors including Temasek Holdings Pvt. Ltd, BlackRock Inc. and Premji Invest.
The e-commerce business in India is valued at $3.1 billion, excluding travel services and tickets, according to a November report by CLSA, a brokerage.
India is also forecast to be the third biggest e-commerce market in the world after the US and China. In 2013, Indian e-commerce companies had garnered an 8% share of global funding. China’s share was 17% and that of the US stood at 41%, according to CB Insights.
But e-commerce players are burning cash very fast for which they need to raise money, especially with deep-pocketed companies such as Amazon.com giving them a tough fight.
Companies such as Flipkart base their optimism on the increasing Internet penetration in India.
The country has about 250 million Internet users, and this number continues to grow very fast. By 2020, India is expected to have more than 500 million mobile Internet users, following the rise in sales of smartphones.
India’s consumer-facing market for Internet-enabled commerce grew at a compound annual growth rate of 49% from 2007 to 2011, to reach a market size of $9.9 billion, according to the 2014 “Commerce 3.0” report by e-commerce firm eBay India Pvt. Ltd. India has the potential to double its economic contribution from the Internet in the next three years, from 1.6% of GDP to 3.33% by 2015, the report added.
However, to reach these figures, India will have to increase its broadband speeds, Internet connectivity, and quality of connections.
E-commerce companies in India, obviously, believe that profits will follow with increasing volumes and valuations. And while the bigger companies will continue to find favour with investors, the smaller ones are most likely to be gobbled up.