Master Strategist SoftBank Backs Flipkart With India’s Largest Funding, Chops Off Snapdeal’s Legs

It’s a done deal. The most anticipated investment of the year has finally come through. Homegrown ecommerce marketplace Flipkart has raised an investment from Vision Fund of Japanese conglomerate SoftBank, despite the Snapdeal merger failing.

As per a company statement, the round is a mix of primary and secondary capital from the SoftBank Vision Fund. The exact details on the amount of investment by SoftBank are undisclosed for now. But, Flipkart will have in excess of $4 Bn of cash on its balance sheet, as claimed by the company. The investment is a part of the earlier $1.4 Bn round from Tencent, eBay and Microsoft. The investment in April 2017 was done at a post-transaction valuation of $11.6 Bn.

Binny Bansal and Sachin Bansal, co-founders of Flipkart said, “This is a monumental deal for Flipkart and India. Very few economies globally attract such overwhelming interest from top-tier investors. It is recognition of India’s unparalleled potential to become a leader in technology and e-commerce on a massive scale. SoftBank’s proven track record of partnering with transformative technology leaders has earned it the reputation of being a visionary investor. We’re excited to welcome the Vision Fund as a long-term partner as we continue to build our business with a focus on serving the needs of all Indians, and driving the next phase of technology adoption in India.”

It is possible that the Vision Fund has infused somewhere around $2 Bn in the company, given the previous balance in Flipkart’s books of accounts prior to the $1.4 Bn funding. Inc42 has previously reported that SoftBank was planning on investing $2 Bn in the company.

SoftBank’s Vision For India

Flipkart claims that this is the biggest-ever private investment in an Indian technology company. The investment makes the Vision Fund one of the largest shareholders in Flipkart. Earlier, there were reports that SoftBank will take a portion of holding of Flipkart’s early backer Tiger Global for the investment. The secondary capital may have been raised by dilution of Tiger Global’s 28% stake, resulting in SoftBank Vision Fund as one the highest stakeholder.

Talking about the funding, Masayoshi Son, founder and Chairman & CEO of SoftBank Group Corp said, “India is a land of vast opportunity. We want to support innovative companies that are clear winners in India because they are best positioned to leverage technology and help people lead better lives. As the pioneers in Indian ecommerce, Flipkart is doing that every day.”

The funding will further solidify Flipkart’s balance sheet and will help accelerate investment in driving continued market leadership.

Earlier this week, Son had said that the Tokyo-headquartered conglomerate was “engaged” with homegrown ecommerce firm Flipkart signalling an impending funding round.

SoftBank’s Vision Fund was launched in October 2016. The fund is currently headed by SoftBank Group founder and CEO Masayoshi Son and India-born Rajeev Misra, designated as CEO of SVF. In January 2017, it was reported that SoftBank Capital will facilitate its investments in India via its $100 Bn tech-focussed Vision Fund. Currently, SoftBank has an India portfolio spanning ecommerce, ride-sharing, digital payments, hospitality, clean energy and telecommunications, which is valued at over $6 Bn.

The Masterstroke By Ecommerce Player Flipkart

The latest funding comes at a time when buzz about the Snapdeal Flipkart deal falling out is just settling down. Till date, Flipkart has raised about $4.6 Bn funding in 14 rounds, excluding the current round.

The recent capital infusion is the biggest funding in the Indian startup space to date. It brings a ray of hope for Indian startups as well as the ecommerce space. For a while now, industry pundits have been criticising the Indian ecommerce space and predicting its impending doom due to lack of innovation. As per Inc42 Datalabs, in the first half of 2017, only 55 deals took place in ecommerce sector, with the segment hitting an all-time low. Out of the total $1.9 Bn funding in these 55 deals, Flipkart’s earlier round contributed the most ($1.4 Bn). This massive round will manage to, at the very least least, change the tide of cries of a dry funding spell in India.

Apart from this, the funding raised by SoftBank also serves as a masterstroke by Flipkart. When SoftBank made the offer to invest in Flipkart, it was looking to get a load off of its bad investment in Snapdeal, which did not yield expected returns in the Indian ecommerce space. Flipkart not only managed to bypass Snapdeal, it also managed to clinch capital and the strategic backing of SoftBank.

Amazon, on the other hand, has been bullish on its plans for India. It has been expanding massively in all facets including, Wallet, Logistics, Prime Video, etc. to capture a major chunk of online shoppers. With its bags full with new capital infusion, Flipkart will look to bolster its position in the Indian ecommerce space, as well as steady its war chest against ecommerce giant Amazon.

Flipkart Funding – More Questions Than Answers

This transaction, however, leaves room for a lot of speculations as it raises more questions than answers.

• The SoftBank Vision Fund emerged as one of the highest stakeholders in Flipkart. Given its investment in Snapdeal, doesn’t the current Flipkart capital infusion amount to a conflict of interest on the part of the investor? Or does Snapdeal no longer matter in this costly ecommerce battle for Indian retail?
• With the increase in shareholding by SoftBank, what will be the equation between Tiger Global and SoftBank? Will Krishnamurthy exit, since his appointment was a strategic move by Tiger Global to take charge of Flipkart’s management?
• One can also not forget Paytm in this equation. The two giants of Indian ecommerce have emerged, but Paytm is also gearing up with its ecommerce marketplace, Paytm Mall. Paytm Mall is backed by Chinese ecommerce giant Alibaba, that has proven its mettle in the Chinese market. In May 2017, Paytm also raised $1.4 Bn funds from SoftBank Group. The investment was done in Paytm’s parent company One97 Communications. Paytm will surely look to expand its reach banking on its mobile wallet. But will it be able to catch up with these giants, since it majorly banks on small-ticket purchases by users?
• And then there is Snapdeal. It is highly unlikely that Snapdeal will get further investments any time soon. The $60 Mn from FreeCharge sale, may help it to stay afloat for the time being. The prospective sale of Vulcan Express, (if that happens) may provide a little more breathing room, but will it be able to redeem itself as the top ecommerce player?
• And lastly and most importantly, how will the global ecommerce giant, Amazon, respond to the growing threat from SoftBank and Alibaba in India?

The fast-approaching festive season will prove to be a litmus test for all the players, and specifically for Amazon and Flipkart, in the race to be crowned as top ecommerce player in India.