Source: Mumbai Mirror
Published on 9th March, 2014
Yolande D’Mello & Kripa Raman
Not a day goes by without good news from the Indian e-tailer industry. But how easy is it to bag $100m in investment? Mirror meets the investors, mentors and dreamers.
On Friday, e-commerce old soldier Flipkart outdid itself when its cofounders and Chandigarh boys, Sachin and Binny Bansal announced that they have hit a run rate of $1 billion GMV (gross merchandise value) a year ahead of target.
Growing 100 times in the last three years, the Bangalore headquartered firm that started off as an online bookstore seven years ago had declared only eight months ago that it was witnessing a run rate of $500 million. Its registered users have ballooned from Rs 2.5 lakh in 2011 to Rs 140 lakh this month. What started, according to IIT Delhi alumnus Sachin, with small change (Rs 4 lakh) is now the profit dream every Indian e-tailer hopes to replicate.
In Mumbai, Harvard graduate Rahul Anand can’t find an empty wall in the Lower Parel warehouse he operates from, to pose for a scheduled photoshoot. Floor-toceiling rows of cartons carrying hard-to-find merchandise for infants and kids must make the backdrop against which Anand and his chief operations officer Arti Gupta flash a smile.
Hopscotch, his 16-month-old babycare portal, made news last month when industrialist Adi Godrej’s younger daughter Nisaba became an early investor (with Singapore-based LionRock Capital, and two others). Together, they have pumped in $2m during Hopscotch’s second round of funding. Anand, who worked in New Jersey for Diapers.com, US’s largest baby care e-tailer, remembers lugging suitcases full of infant goods for his just-turned-parents friends in Mumbai. Diapers.com was acquired by Amazon.com for approximately $550m in 2011, which is when Anand and his colleague Lisa Kennedy decided to bridge the gap in the Indian market with a site that sells curated products from a current list of over 400 niche international and domestic brands using a flash sales model. This means, they offer limited stock through what they call ‘short duration boutiques’ that go live at 9.30 am, and offer a collection that’s available for only three to seven days.
Hopscotch started with five orders a day, says Gupta. They now reach out to 1 lakh mothers daily, sales have risen 40 times in 16 months, and they are adding 20 new brands each month.
With a team of 25, Hopscotch now occupies three warehouses in the building and is looking to rent additional space in Bhiwandi. Anand hopes to be profitable by 2017.
Riding the wave
Godrej’s personal investment came close on the heels of news that IT czar Azim Premji’s private investment unit PremjiInvest led the funding round that raised $50m for online clothing and lifestyle store Myntra. The move is explained by an analyst thus: “They are spreading their risk, and want a taste of new-age businesses.”
It’s probably true of one of Bollywood’s biggest producers, Ronnie Screwvala too. In December last year, he pumped in $2.5m during EkStop’s second round of funding.
“The first year growth is the litmus test,” says Sumat Chopra of EkStop, a Mumbai-based equity investor who launched the online grocery store in May 2012. After pooling in Rs 25 lakh each from their personal savings, Chopra and his co-founder – together with angel investor Jayesh Parikh of Sony TV – are looking to expand operations to Pune and Delhi by the end of the year.
What does it take?
Mahesh Murthy, managing partner at Seedfund, an early-stage venture capital fund, explains the criteria for an accelerator to decide where to invest: the potential for the start-up to acquire the next round of funding, and to survive or demonstrate substantial impact on the small amount of money the accelerator can offer it in a short period of time.
“The next level of funding is determined by the perceived potential achieved, the potential to dominate its niche in the market, and the leadership team’s ability to ‘jugaad’ its way to survival,” he says.
While in the strategy wing of supermarket giant Walmart, and Amazon in New York, Chopra’s job included sniffing out smaller start-ups that could be acquired. It is crucial, he says, to adapt and evolve with your customer. While buyers in the US prefer purchasing in bulk, Indians shop for groceries once every 10 days. A large number also prefer placing orders over the phone. Hence, a 20-member team from a workforce of 120 operates out of an office in Fort, exclusively manning phones for EkStop. Chopra has also introduced the Card on Delivery option, with delivery boys carrying portable swipe machines that can be used with customers who don’t trust credit card deals over the net.
Do or die
Versova resident Kunal Ross, who is awaiting his second round of funding, is pushing himself to think positive. “There’s no room for error. You can’t think about what will happen if this investment doesn’t come through.” Part of a four-member team spread across Mysore and Mumbai, the 36-year-old founded online coffee store The Indian Bean in 2012.
The company sources coffee beans – Appa’s from Coorg, Frowner’s coffee from Kodaikanal, Watapi from the hills close to Mysore – directly from farmers to sell online. A kilo of the Watapi variety can cost you Rs 1,400. “It started with an idea,” he says. “Home to some of the finest coffee plantations, India still lacks a strong coffee culture.” Although he has managed to hook customers across Mumbai, Pune, Bangalore and Delhi, he knows his USP – a niche offering – is also his biggest challenge. “Selling coffee is about volumes. You need to sell tons of it to make money. I knew it would be difficult in the first year, but we are facing a problem in logistics,” he admits. It’s not economical to sell 100g to newcomers on the site who may want to sample small quantities. “The minimum order a courier company will accept is for 250g.”
The hospitality graduate who started off in Mysore as “senior butler”, and followed it with a nine-year stint in advertising, is joined by a co-founder who is taking a second chance. After his coffee retail business in Mysore had to fold up, he turned to the web. It is unlikely, though, that Ross is going to take another leap. “I’m a service-class citizen,” he says, referring to the job he quit in February to turn businessman. “And I am a little late in the race since most entrepreneurs are in their twenties. I’ll go back to a regular job if this doesn’t work out,” he shrugs.
Knowing when to sell is part of the plan, too. “Investor confidence comes as much from an exit plan that supports returns. The idea is to build a model and prove its function,” he says.
Interestingly, Ross is the ideal candidate to attract investor curiosity, if Samir Kumar is to be believed. MD at Inventus Capital Partners, an Indo-US venture fund that has invested in five e-commerce firms, he says, “We look for entrepreneurs who have some skin in the game. Someone who has quit his job, for instance. If he hasn’t put in hard-earned cash, then we look for people who don’t take a salary themselves.”
The real picture
Obviously, it’s far from rosy. Website NextBigWhat claims that the first half of 2013 saw 135 e-commerce firms fold up. While the giants make a fortune – and news – there are hundreds of smaller players who are burning cash in a race to win customers, managing on reed-thin margins, waiting for that inflection point when sales volumes will soar so that costs will get amortised, and profits will finally pour in.
Indiaplaza, Seventymm, Koolkart and UrbanTouch.com are among the fallen pins. “Only a few top players will succeed, but right now, the market is too nascent for too many to sell off,” says a research analyst with the Indian arm of a US-based investment bank. Even the world’s largest online retailer, Amazon reported profits of $274m for 2013. That’s minuscule compared to its sales of $74.5b, which grew 22% over the previous year. A report in a business paper pegged Flipkart’s losses in the financial year ended March 31, 2013 as Rs 281.7 cr — up from Rs 109.9 cr the previous year. But its revenue grew five-fold, from Rs 204.8cr to Rs 1,180cr.
How many companies in the developed world can grow 22% annually, and how many in India grow 500%? That explains rocketing investor interest.
Vani Kola, MD, Kalaari Capital, a venture-capital fund that has invested in eight e-commerce ventures in India, says, “They are bagging funds because of their spectacular growth. E-tailers have been able to provide what conventional retail could not — goods that aren’t available in the vicinity of the consumer. It is like having a pan-India Dilli Haat.”
Feeding the monster
For Ashutosh Lawania, profit isn’t priority. Expansion is. The cofounder of Myntra says, “We are looking at what the demand will be a year from now and how we can meet it. This means reinvesting funds in technology, talent, marketing and infrastructure.” This includes acquiring Share Singh, an online merchandising brand, and Fitiquette that develops technology for body shapes and sizing.
With the online lifestyle category worth Rs 400cr and one with the highest margins (books offers the lowest), Myntra is simply looking for a slice of the pie. Fifty five per cent of their sales come from tier II and III cities (Surat, Mysore, Salem, Tumkur, Shimoga, Palakked, Tirupur, Nanded), and 65% of buys are by repeat customers.
With over 200m Internet users, we are already the third-highest base of Internet users in the world. And with a little over 10% of the population accessing the Net, and the fervent spread of broadband and mobiles, the potential that lies ahead can only make investor pulse race.
Source: Mumbai Mirror