“The FreeCharge sale was an important part of Snapdeal 2.0 and without that capital, our survival as a company would have been at risk,” Snapdeal co-founder Kunal Bahl admitted while sharing on LinkedIn details of the ecommerce company’s struggle in the last year.
In April 2017, the ecommerce industry witnessed the fall of a unicorn that was once valued at $6.5 Bn, but it was resurrected by founders who had an iron will.
Despite the loss of hope from investors’ end, Snapdeal founders Kunal Bahl and Rohit Bansal turned down an $850 Mn offer from Flipkart — the much anticipated, speculated, and talked about Flipkart-Snapdeal merger was called off after months of discussions in August 2017.
And as Bahl said, it was the sale of fintech company FreeCharge that brought back lost hope for Snapdeal to revive from the ashes.
So, Why Did Snapdeal Sell FreeCharge?
The merger with Flipkart was around the corner. And the Snapdeal founders were determined to change their fate. The business model for Snapdeal 2.0 — the Taobao of India — was already in place. However, the missing piece of the picture was a significant amount of capital, which they needed to trudge along till things got better and bring in new business.
“We were going to fall off a cliff if a call was not taken immediately to continue to build the business. Any further delay in taking a categorical decision, one way or the other, was guaranteed to be fatal for the company,” Bahl wrote.
While the failure of the Snapdeal-Flipkart merger would certainly have hit the pride of many (associated) top-notch stakeholders in the Indian startup ecosystem, the founders were certain that this decision would leave them empty-handed.
Snapdeal was losing money and its cash reserves were depleting fast. Many team members were barely coming to work as they had no clarity whether or not they would have a job if the merger happened, and the company was unable to give them that clarity.
It was at this point that Jasper InfoTech, the parent company of Snapdeal, sold digital payment app Freecharge to Axis Bank for $60 Mn in July 2017, thereby securing the much-required capital to sustain Snapdeal.
Related Article: Snapdeal’s Shift In Strategy Pays Off, Trims Losses By 87% In FY18
The money from the FreeCharge sale helped the founders launch Snapdeal 2.0, which was envisioned to “fix the economics of the business.”
The startup launched Snapdeal 2.0 in August 2017, as it planned to stay independent, and also called off the merger discussions.
With Snapdeal 2.0, the startup spent the next three months organising a continuous loop of engagements — company-wide town halls were followed by team-wise meetings, each individual was spoken to by one or more members of the leadership team, personalised copies of contextual motivational books, monthly newsletters and progress updates went out regularly.
“Rohit Bansal (Snapdeal co-founder) and I gave presentations to the teams about the strategy, execution plans as well as the uncertainties,” Bahl said.
In Any Case, FreeCharge Was A Big Loss To Snapdeal
Although the FreeCharge sale helped Snapdeal get back on track, it was a great loss for the company. On one hand, it was a loss-making deal, as Bahl and Bansal had acquired FreeCharge in April 2015 for an estimated $400 Mn, but it was sold for a much lower amount.
At that time, the deal was touted as the largest buyout in the Indian startup ecosystem. FreeCharge was India’s once second-largest digital payments company valued at $5 Bn.
Plus, it also lost its chance to be on the same page with its arch rivals Flipkart and Amazon India — who own their own digital payment app PhonePe and Amazon Pay, respectively — at a time when the Indian fintech sector was witnessing a formative growth with more startups, incubators, and investments emerging in the market.
However, the period between April-July 2017 was not about scale but about holding its ground.
“With the FreeCharge money in the bank, we thus doubled down on our efforts to drive key profitability initiatives,” Bahl said.
Independent Snapdeal To Continue Its Journey
Bahl rightly points out that Snapdeal is only Indian-owned ecommerce company left.
“We recognise that we are now the only horizontal ecommerce company at scale left in India that is independent and not owned or operated by a large multinational corporation,” writes Bahl.
In May, homegrown ecommerce startup Flipkart sold 77% of its stake to US ecommerce giant Walmart for $16 Bn in the world’s largest ecommerce deal. Above all, one of the two Flipkart founders — Sachin Bansal — was forced to make a complete exit from the company.
On the contrary, Snapdeal made its comeback. In August 2017, the founders had apparently envisioned Snapdeal 2.0 to make a gross profit of $23.3 Mn (INR 150 Cr) in the next 12 months. Later, in an official press statement, the company claimed that during the period of September 1, 2017, till October 20, 2017, Snapdeal not only increased its sales but also increased its net margin by six-fold as compared to the festive season last year.
Further, in its FY17 financials ending in March 2017, Snapdeal claimed to have reduced its fulfillment cost by 20% and operational losses by nearly 25%.
“The company continues to make rapid progress in driving profitable growth, which will be reflected in the results for FY18,” a company spokesperson told the TOI.
Mergers. Consolidations. Acquisitions. These words are not uncommon in the global startup ecosystem and millions of such deals have been finalised. But how many such deals can claim to create an impact on the entire ecosystem? In this regard, we believe that the failed Snapdeal-Flipkart merger has definitely become the talk of the town and will remain so in the coming times.
History will remember Indian ecommerce as a sector that witnessed not only the fall of the most anticipated and most speculated merger deal but, along with it, the fall of power, pride, dominance, and at the same time, the rise of the strength of the will and perseverance of founders trying to save a company.
“What one needs to muster, right when you are at the bottom of the abyss, is the grit and courage to continue,” Bahl wrote, concluding the one year story of Snapdeal — which they happily stayed under the radar — and hopes to be instructional for some and, hopefully, inspiring for others.
[The story has been written with inputs from Meha Agarwal]