Will Flipkart now accept a 'down round' as next logical step?

Photo: Amit Verma

Less than a couple of years ago, there was much fanfare as Flipkart lured Punit Soni from Silicon Valley to come and run the Indian ecommerce company’s products vision—a big part of which, as it turned out, was an ambitious mobile-app-only strategy.

After Hugo Barra, who left Google to join Chinese electronics maker Xiaomi, Soni was one of the most senior Googlers to join an Asian startup. When he joined Flipkart in March 2015, Soni was the former head of products at Motorola Mobility, which Google sold to Lenovo.

Soni’s entry triggered a slew of press copies in India, including by this writer, on desis returning from Silicon Valley to help India’s startups conquer the world, and Flipkart was once again hailed for setting the bar. The year 2015 also saw founders Sachin Bansal and Binny Bansal debut on the Forbes India Rich List.

Investors, chief among them New York’s Tiger Global Management, were betting billions of dollars on its success, and Flipkart’s valution soared to over $15 billion by about mid 2015. After that, things seemed to have unravelled a bit, eventually precipitating the following announcement on January 9 in a press release: Flipkart was elevating Kalyan Krishnamurthy, an executive from Tiger Global, the startup’s largest investor, to chief executive. Krishnamurthy (45) was already serving as Flipkart’s head of categories and was widely seen as de facto boss of large parts of the company’s operations.

The restructuring saw co-founder Binny Bansal become Group CEO, while Sachin Bansal remained executive chairman. Senior executives such as Ananth Narayan, CEO of Myntra, Flipkart’s fashion business, and Sameer Nigam, boss of PhonePe, a payments tech company Flipkart acquired, will remain in their positions and report to Binny Bansal, according to the release.

In the 18 months or so since the zenith of its stratospheric valuation, Flipkart saw several downs. Its value on paper was slashed to a third by Morgan Stanley, Soni had already departed just over a year into the experiment, even as the app-only strategy was widely considered a failure, and deep-pocketed Amazon was bringing its technology and knowledge of online commerce to bear, making significant strides in India. Flipkart is still seen as the market leader, but more narrowly so.

It didn’t help that Sachin Bansal appeared in a panel discussion alongside cab-hailing startup Ola’s founder Bhavish Aggarwal only to together call for government protection against competition from overseas businesses. They were speaking at a high-profile conference organised by policy think tank Carnegie Endowment for International Peace in December.

Flipkart and its investors’ earliest thinking might have been that the company would grow rapidly enough to dominate the Indian scene.

That hasn’t come to pass, and until about a year ago, a lot of money was available and in addition to Amazon, Flipkart’s rivals Snapdeal, Shopclues and smaller niche startups are still in play. Then there is Paytm, which will separate out its marketplace business into a standalone entity and play a role in China’s Alibaba Group’s next stage of penetration into India.

This is also a time when most retail in India is still very much offline and ecommerce really refers to smartphone sales, which accounts for more than half of ecommerce sales in India, barring things like airline and train tickets. And the actual relevant market size itself is small today, in the range of about $15 billion depending on how one looks at it.

Therefore, as the ecommerce market expands, to as much as $120 billion by one estimate, in the coming few years, Flipkart will have its work cut out. And it needs money, a fact that Sachin Bansal himself pointed to at a tech conference in Bengaluru in November—for attracting and retaining talented people and to expand and improve its supply chain, not to mention the bruising discount battles needed to fend off competition.

Wal-Mart Stores is reportedly in talks to invest as much as $1 billion in Flipkart, but it remains to be seen what value such a deal, if it happens, will place on Flipkart.

In the mean time, Amazon has an opportunity to step on the gas. It will invest an additional $3 billion in its Indian operations, founder Jeff Bezos has already said, in June, taking the total to $5 billion since he first announced a $2 billion investment in July 2014.

What next then for Flipkart, given that the changes announced Monday evening can be viewed as the co-founders largely stepping away or even ceding control of running the pioneering Indian ecommerce startup. An executive from the company’s largest investor is now CEO, and while Flipkart’s statement specified that the heads of Myntra and PhonePe would report to Group CEO Binny Bansal, it was silent on whether Krishnamurthy would do so as well.

One answer is, Krishnamurthy is his own man and the latest restructuring clears the way for a so-called ‘down round’, meaning Flipkart will value itself lower to raise more money and keep fighting.

The thoughts and opinions shared here are of the author.