India's Flipkart raises $1b in downround – report

Investors in the latest round included Microsoft, eBay, and China’s Tencent Holdings, according to Bloomberg, citing sources familiar with the situation. It is the first funding for Flipkart since co-founder Binny Bansal was replaced as CEO earlier this year by Kalyan Krishnamurthy, a former managing director at the company’s largest backer Tiger Global Management. Bansal had himself replaced co-founder Sachin Bansal as CEO a year earlier.

In addition to participating in the latest round, eBay is also considering investing another $500 million in Flipkart and merging its India business with the company, The Business Standard said, also citing unnamed sources. The move would take eBay out of India’s competitive e-commerce sector, where it has struggled to establish a presence.

Flipkart’s new round caps off a turbulent year for the company, with the CEO change, multiple departures by senior managers and highly public markdowns by several US-based hedge funds. Both Fidelity and Morgan Stanley cut their valuation of the company four quarters in a row, each reaching $52.13 per share by January. T. Rowe Price also announced that it had cut its valuation from $142.24 per share in December 2015 to $96.29 per share as of September.

Flipkart has downplayed the mutual fund markdowns, calling them “theoretical exercises” that do not reflect its internal operations and planning, and investors have expressed skepticism about the value of such reports to understanding the company. The methods by which mutual funds value their portfolio companies are not known. 

The possibility of a downround for Flipkart has been anticipated for some time among Indian investors, many of whom see the company as the most visible victim of excessive hype around the country’s technology sector.

Flipkart operates an online marketplace for products ranging from consumer electronics to clothes and footwear. The company claims to have 100 million registered users and 100,000 sellers, and to enable eight million shipments per month.

Since its founding in 2007 Flipkart has raised multiple funding rounds, most recently a reported $700 million investment by existing investors including Morgan Stanley and Tiger Global. The company is facing strong competition from US-based rival Amazon as well as local competitors Snapdeal and Paytm, both of which are backed by China’s Alibaba Group.

Amazon has gained steam in India over the past year, taking the lead over both Flipkart and Snapdeal in gross merchandise volume for the first time in July and raising questions about the domestic companies’ ability to compete directly with the cash-flush US competitor.

However, some in the investment community consider Flipkart better positioned for the long term due to lower levels of cash burn than Amazon and its domination of the fashion e-commerce market through Myntra, which it acquired in 2014 for $300 million and which bought its main rival, Rocket Internet-backed Jabong, last year for $70 million.

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• Topics
• South Asia
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• Expansion
• India
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