So, Flipkart recently raised $1.4billion, valuing it at $11.6 billion. This is a direct proclamation of war against international giants including Amazon and Alibaba as well its domestic rival Snapdeal. Our focus here would not be Flipkart but Snapdeal.  The kind of evolution this coupon selling company turned ecommerce player had, it would be interesting to delve deeper into its story.

It all began in 2007, when Kunal Bahl and Rohit Bansal, the two former classmates, wanted to turn their dreams of starting a business into reality. They formed a coupon selling company called MoneySaver. The company turned out to be immensely successful. It sold about 15000 coupons in an astonishing time of three months and offered discounts for restaurants, hotels, movies. In a span of two years, it had a market share of whopping 70% and had raised $57 million including $45 million from BVP India. However, reality struck hard soon when they were left searching for cash to pay for their employees’ salary. Such were the circumstances that they had to dig up their personal accounts and were left with not a day’s cash.  It was a do or die situation.  It would have been easy to let go of this life of constant uncertainty and settle for a conventional job. The comforts of a salaried job were too alluring. But, as Bahl recounts, “We had a keeda [loosely translates to obsession] from our school days that we want to do something of our own.” It is this keeda which has led them this far. There was no looking back then.

The first offline then online deals company was now transformed into an ecommerce giant. Starting with an offline model first and then taking it to the online marketplace, the duo conquered the world. This was when there were no online marketplaces in India. eBay, the global giant had sparse presence, but that was it. The 20 member team gradually grew to more than 2000 employees, 50000 merchants spread across more than 4000 cities and a customer base of more than 20 million. The company grew at an enormous pace of almost 600% at one time.

One of the reasons behind the massive success of the company is attributed to the relentless enthusiasm of the founder duo. They fought against all odds and never gave up. As one of the interviews state, they motivated their employees using the OB techniques Bahl learnt during his management at Wharton. One of them used for goal setting is known as BHAG, Big Hairy Audacious Goals. The idea is to set seemingly impossible targets, be it related to revenue or performance and work towards attaining them. These goals should be such that evoke surprise, shock, nervousness and laughter from the employees, those who pass then on as jokes on their face. However, it is these goals that you work towards achieving and surprisingly enough the company did manage to attain those unattainable. Every quarter there was a new goal to be reached. The first one was set six quarters back: Mission 30. Snapdeal’s monthly revenue was between Rs 5 crore and Rs 7 crore then – by the end of the quarter it had to be raised to Rs 30 crore. Eyes in the office popped out at the figure – but it was achieved.


Mind numbling Acquisitions

Another interesting tale would be the number of acquisitions the company did on its way to glory. Believing in the idea of faster inorganic growth, Snapdeal did a number of acquisitions starting June 2010. Grabbon was the first company to be acquired with the aim of extending the company’s reach in Bangalore and adjoining areas. This is when Snapdeal was still Jasper Infotech’s MoneySaver. After a gap of two years, fresh into the Snapdeal ecommerce world, Snapdeal acquired eSportsBuy in April 2012      to expand into sports goods category. Then in May 2013, it bought handicrafts marketplace Shopo, apparently to gain access to their vendor base. In April 2014 when fashion was on everyone’s agenda, Snapdeal bought fashion product delivery platform Doozton. In December same year, it bought Wishpicker, an application that uses recommendation engine to suggest gifts. In February 2015, bolstered by Flipkart’s most recent activities, Snapdeal acquired Exclusively, a top end fashion platform, following the same model as Flipkart did with Myntra.  Diversifying its base, Snanpdeal bought majority stake in RupeePower, which connects hosts with lenders. In April 2015, in one of its biggest acquisitions, Snapdeal acquired FreeCharge for $450 million. I’m sure you get the gist by now.

But one question that is still bugging me, where is the money for all this coming from? Is there a need for a call to the tax authorities? Ofcourse, not. The source of capital is the investment by large equity investors and institutional investors. It would be interesting to look at what defines the sky rocketing valuation of these ecommerce companies.

Investment Cycle

It started in January 2011 when Snapdeal received $12million funding from Nexus Venture Partners and Indo-Us Venture Partners, their first ever investors. In July that year again, it raised $45 million from BVP Partners along with the first two investors pumping in money again.  The third round of funding saw eBay coming in the foray with $50 million.  Then again in Feb 2014, Snapdeal received 4th round of funding of $133 million led by eBay along with Kalaari Capital, Intel Capital, Saama Capital, Nexus Venture and BVP Partners. The 5th round of funding happened in May 2014 bringing in $105 million from Blackrock, Premji Investments and others, valuing the company now at $1 billion.

The idea is clear now. If you match the investment cycle with the acquisition history we see a clear one-following-the-other trend. With pumping of money each cycle, the company utilized those funds to expand its horizons in all possible directions. It was slowly and steadily developing its market base and fighting all competition. Their unique model paid off. The decision of not following Flipkart (or Amazon’s) inventory led model helped them scale up fast and they are now being adapted everywhere.

While all this was happening too fast, other players were quick to catch up too. The country’s landscape was changing and this saw entry of global players including Amazon in full form along with the domestic player Flipkart growing leaps and bounds. Cut the chase to today, all does not seem too well in Snapdeal’s humble abode. Snapdeal held talks with several investors, all of whom refused to put in money at the stated valuation of $6.5 billion. The change of heart of those beloved investors who once showered money is probably due to the change in statistics to value these companies. In simple words, in a young ecommerce market, these companies are supposed to have a long gestation period; hence they are valued by looking at the top line instead of the bottom line. GMV or the gross merchandise value is used as yardstick for performance to judge profitability in future. Snapdeal’s GMV grew by 556% and hence it saw all those cash flowing in. However, now the market seems mature, hence the focus is shifting to the bottom line. Sadly, none of them are profitable yet. Snapdeal is first to get hit. While investors are playing their game, the employees are not helping either. Two more executives had quit recently, ruffling up rumours of a buyout. However, at the same time, Flipkart recently raised $1.4 billion in the largest ecommerce deal valuing it at $11.6 billion. The first question that comes up in everyone’s mind is, is the acquisition of Snapdeal on cards?