Flipkart sale brings joy to investors

Experts believe the stellar returns clocked by Flipkart investors is a reason to rejoice, but cautions that there aren't many companies of Flipkart's scale yet

Everything about entrepreneurship, the good, bad and the ugly of it, fascinates me. I take a keen interest on startups and venture capital firms and have written extensively on fundraises, M&As and business strategies. I can safely say changing tracks from engineering to journalism has been one of my best decisions. When not working, I indulge in almost every Indian's poison, cricket, playing or watching. I am a foodie and video game buff.

g_105621_flipkart_bg_280x210.jpgImage: Abhishek Chinnappa / Reuters
 
Walmart may have seen its value erode by about $8 billion in the aftermath of its acquisition of India’s ecommerce poster boy Flipkart, investors in the Bangalore-headquartered company have heaved a sigh of relief. First, Flipkart have navigated tumultuous times to make stellar returns for its investors. Second, the deal, being the largest in the history of online retail worldwide, reaffirms the scope of ecommerce in India, which may rekindle the global investor community’s interest in backing both Indian funds and companies.
For instance, Tiger Global Management, one of the early bulge bracket backers of Flipkart to have invested close to $1 billion in the company, is believed to have raked in about $3.5 billion through the sale of a majority of its holding in Flipkart to Walmart. The deal is key for Tiger Global, which went on a rampage in 2014 and 2015, investing close to a couple of billion dollars in at least 30 Indian companies — a majority of that accounted for by Flipkart and Ola — before retreating after most of its investees failed to deliver on the promises. Walmart’s buyout of Flipkart helps Tiger Global cover for all its bets in India.

Similarly, Accel Partners, the first institutional backer of Flipkart which have pumped in close to $100 million in the company over the years, have raked in an approximately eight-fold return. South African media company Naspers, which made $2.2 billion for an approximately $600 million investment.

Most importantly, Japan’s SoftBank, which bought a stake in Flipkart last year for $2.5 billion in a mix of primary and secondary transaction, exited the company at $4 billion, a 60 percent increase in a less than a year.

Some of the smaller stakeholders — for instance the likes of IDG Ventures and Kalaari Capital, who entered Flipkart when the company bought fashion retailer Myntra — have also benefitted from the sale.

According to industry experts, Flipkart’s sale to Walmart is a seminal moment for homegrown venture capital firms on multiple counts. First, the deal, which valued Flipkart at about $21 billion, is a significant premium to the $11 billion valuation it commanded during its last fundraise mid last year. Hence, this is not a deal under duress. The buyout also reinforces the scope of big exits in India for sector leaders like Flipkart and becomes a feather in the cap for its investors, especially at a time when profitable exits in terms of mergers and acquisitions have been far and few and IPOs, next to none.

“This will bring some confidence in the Indian market on the possibility of getting good returns. It is not going to be like China,” says Satish Meena, senior forecast analyst at Forrester.

To be sure, India barely has any other consumer startups that have come close to Flipkart’s scale, other than Ola and Paytm. Experts also believe that the returns on Flipkart may excite new investors to scope out the India story. “There are two schools of thoughts here. One, that Flipkart was the largest privately held technology company and it couldn’t go all the way like Amazon, Tencent or Alibaba. The other way to look at it is, a whole lot of funds have got excellent cash returns.

For the funds who backed Flipkart in the early stages, this deal increases their confidence and their ability to raise funds from other limited partners,” says a senior executive at a venture capital firm, declining to be named.

“The feedback in the ecosystem is that a whole lot of people will be interested in investing directly or into funds in India. This means more funds, existing funds having more cash and hence more optimism. But, then we also have to keep in mind that there aren’t many companies in India of Flipkart’s scale,” he added.

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