Flipkart set to raise up to $1.5 bn – but at lower valuation

Home-grown ecommerce major Flipkart is in the final stages of raising its latest round of funding in the range of $800 million to $1 billion (Bloomberg puts the figure at $1.5 billion) from both existing and new investors, but this is likely to come at a lower valuation of $7-8 billion.

The e-retailer had last raised funds to the tune of $700 million at a valuation of $15.2 billion in July 2015, but since then the situation has changed dramatically for both the company and industry.

Sources told The Financial Express that the latest fund raising, which is likely to close in the next 4-6 weeks, will come in at the lowered valuation taking into account the current business environment, with the sector not being in hyper growth mode.

Flipkart would require this funding to stave off fierce competition from rivals like Amazon and the latest entrant Alibaba. Amazon has already committed $5 billion of investment in the Indian market. Flipkart also plans to go deeper into the Indian market to tier 2 and 3 towns, which would require higher investments.

Flipkart has till now cumulatively raised $3.15 billion, with key investors being Tiger Global, DST Global, Nasper, Steadview Capital and Accel Partners. It reported combined losses of Rs2,851 crore on a revenue of Rs15,129 crore for FY16.

According to FE, some of the new investors in the company would be the global software product giant Microsoft, US based e-commerce player eBay and Chinese internet major Tencent.

Flipkart recently got into a cloud partnership deal with Microsoft which was seen as a major win for the software product giant. On other hand, eBay could not independently make much headway in the Indian market and would like to get a piece of the action through Flipkart.

In the case of Tencent, its Chinese rival Alibaba has made its foray into the Indian ecommerce market through its investee company Paytm, and it would like to catch up.

Flipkart has been looking to raise additional funding for quite some time now but it had been stuck on valuation grounds.

The $15.2 billion valuation enjoyed by Flipkart in the past did not cut much ice with the investors as the overall ecommerce market in India had slowed down in 2016 and the company also faced stiff competition from the global ecommerce player Amazon.

When contacted by FE, a spokesperson for Flipkart said, ''As a company policy, we do not comment on market speculations''. A spokesperson for eBay too said the same and a Microsoft spokesperson said, ''We have no plans to share in this regard.'' An email sent to Tencent remained unanswered.

According to RedSeer Consulting, the Indian ecommerce industry which grew by 180 per cent in 2015 crashed to mere 12 per cent growth in 2016. It also expects that 2017 will be a defining year for the sector that will differentiate the best from the rest.

Flipkart has already witnessed deep management changes with Kalyan Krishnamurthy representing investor Tiger Global taking over as chief executive of the company's ecommerce business, with both the founders – Sachin Bansal and Binny Bansal - taking on wider roles.

Under the leadership of Krishnamurthy, Flipkart has clawed back its pre-eminent position with market estimates that it had beaten Amazon during the Big Billion Day sale in November last year. It has managed to get into exclusive partnerships with mobile phone manufacturers which are the largest selling items in the marketplace.