Online space in India is warming up and gaining traction since past few years with ecommerce as a key growth business vertical. Considering the series of investments in the year 2007 thru year 2011, ecommerce attracted many aspiring entrepreneurs who are now in startup, early or growth stage of their business and trying to raise funds from Indian Angles and VCs. However many of them are still unaware of the fact that, they might need few more additional skills over and above passion, intellect, good team, good idea, and good business to get the funds, or else they would be left to their fate and sacrificed for so called “Investors Sentiments or market skepticism”.
It has now been long since Iamwire heard negative sentiments around investing in ecommerce by many reputed investors; some of them saying, “Ecommerce is a deep pocket game”, and some saying there are no numbers in ecommerce right now.
Further, after talking with many start-ups iamwire realized that the series of questions they were asked before being looked at, such as revenue, order per day, gross margins, contribution margins, EBITDA, etc, maybe a very good way of evaluating startup potential. But, we were taken by surprise when some or rather many of the investments we saw, did not fall in line with these metrics. This is where iamwire started investigating and exploring facts about such investments, with our interest in multiple investments made in startups led by same individual/group, such as, the one in the discussion today, The Smile Group.
The facts, data, information presented here is compiled as received by various sources and available publicly.
Let us analyze the recent funding in the Group and the state of others which are likely to be funded soon (?)
Freecultr.com which was started by Harish Bahl along with Sequoia Capital, with Sujal Shah – ex IMG Head Fashionweek, and Sandeep Singh, has recently raised another round of funding from Sequoia and Ru-Net – Moscow based Venture Fund of US$ 9 Mn at a valuation of INR 180 Crore.
Ru-Net which has recently entered India, was looking to invest US$50 Mn in the South-East Asian Market with 5 to 20 million dollars in a single transaction, preferably in the areas of e-commerce, online travel, online entertainment, and social gaming, and preferably in startups which have already received some amount of seed funding.
Freecultr initially raised US$4 million from Sequoia and very small contribution from original promoters which they successfully burned over a period of few months, and could only reach monthly revenues between INR 3-5 Lakh. With this high burn rate and very low revenue, certainly the company needed a lot of cash and soon.
Freecultr.com with a 3.5 lakh revenue/month raised $9 million funding after burning more than US$4 Mn dollars: what logic do investors buy? Freecultr did create a buzz in the market by getting the kingfisher calendar girls to wear – I luv Freecultr tees and KKR to post Freecultr logos on their Tees at a cost of INR 40 Lakhs and clearance sales to other group employees and other vendors. It has raised US$ 9 Mn selling a plan of doing almost INR 100 Crore in revenues this financial year and investors did buy the idea of revenues increasing from INR 3.5 Lakh/month to INR 50 Lakh a day from next month to commit this number.
Other interesting venture of this group, dealsandyou.com is at a burn rate of INR 4 Crore a month and had a massive layoff recently including ‘realignment’ of Gaurav Kachru (CEO)’s role. Amazingly DNY also managed to raise USD 17 Million @ a valuation of USD 85 Million within 14 months of its existence. Out of the many instruments that worked for DNY, some were jacking up sale by selling to group company FNY and selling refurbished and defective blackberry phones to customers, certainly they are not the only ones doing this, with many ‘well-invested’ companies also sharing the same boat.
Further, one of the talked about success stories of Smile, Fashion and You, leader of group’s growth story, with multiple rounds of investments, is now seen to be struggling with stagnating monthly revenues and growing burn rate. It is apparent from the data iamwire received from sources that Fashion and You grew drastically to revenue of INR 11 Cr (rounded) per month; however has moved little since June-2011 and almost stayed around 12 Cr in past few months. [Similar trend is experienced by other “Discount” focused companies and for some the revenue has even come down, some of these cases iamwire will present further in this series]
Pearl recently talked to the press about hiring 400 new employees, but how will they do it? Is Fashion and You looking to raise more funds? Further fund raising opportunity for FnY is currently restricted due to legal issues, with one of the co-founder obtaining a stay order from CLB – company law board against Gold Square Sales India Pvt. Ltd. – the holding company.
According to the sources, there is significant value of dead inventory in the warehouses for which Pearl Uppal recently approached SnapDeal’s Co-Founder to explore the possibilities of liquidating some of the dead stock.
The story of Indian Ecommerce has a link back to Germany where it all started. German incubators such as Springstar and Rocket Internet have plans to dominate the ecommerce space in India, trying to outdo each other with their Entrepreneurs-in-Residence (EIR) Programs. Springstar is the incubator behind Fashion and You, Deals and You, Bestylish, Juvalia.in, and Rocket Internet behind Jabong, HeavenandHome, Fabfurnish (and more coming up) competing with each other and the winner being decided by the choice of their local partners. But here, their world renowned executing capabilities are getting challenged at maximum.
Though the philosophies of German Incubators are of build and exit strategies, for which they are famous worldwide, it is still helping the Indian market to rise as a top ecommerce market in the world attracting the attention of all. But are the practices well transferred? India is an altogether different Consumer market to operate and has a lot of challenges in terms of operations; still all the money that is put in can be well used, which will generate larger returns overtime. It needs a lot of change in the perspective of people of our country to survive not just in ecommerce.
Iamwire is proud to take a stand in favor of true entrepreneurship and safeguarding Venture investments, providing them neutral and analytical perspectives in Indian Online Industry. We do welcome inputs, suggestions and comments from the industry and would also ask whistle-blowers to highlight issues of corporate governance and other malpractices within the industry. Our endeavor is to promote honest entrepreneurship – and bring the wrath of peer pressure on malpractice. In case you want to highlight some issues please drop a mail at firstname.lastname@example.org, anonymity will be maintained.
We strongly believe Online Industry and eCommerce in India is growing and is here to stay.