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Flipkart $1 billion

eWars
If you search Flipkart for
Amazon, you will get several
categories Kindle cases (not the
Kindle itself, of course), books
(Amazonia: thats about the river;
Jeff Bezos and the Age of Amazon:
thats about the founder and ceo)
and even a hoko flip cover.

If you search Amazon.in for

Flipkart, you will get several
categories Flipkart mobiles
(which turns out to be not
Flipkart but flip cover), Flipkart
kitchen (ArtWorld Retro lp record
wall clock; dont ask why, but
theres art in common) and
Flipcart.com (Mercury Goosperry
Flip Diary Case).
Amazon.com is not much
better. A search for Flipkart
India throws up Fat Cat 11.5 g
Texas Hold em Poker Chip Set
500 Chips.

ll this would have been

irrelevant trivia a
Google search with an
attitude if it hadnt been
for the fact that both Flipkart and Amazon have been waxing
eloquent on the range of their offerings and the ease of purchase. Says
Amit Agarwal, Amazon India vicepresident and country manager: We

have more than 17 million products

and 9,000+ sellers.
Thats true as it goes. But some of
these products are from the International list. This means they cost so
much more. A 1,000-piece Ravensburger jigsaw costs `2,378. At Flipkart, the same item is available for
less than `1,000. Why should I go
to Amazon.in, says a customer. If
I were prepared to pay that much, I
would have gone to Amazon.com a
long time ago. Flipkart should not
pat itself on the back too soon; some
of its vendors refuse to deliver the
jigsaw to Navi Mumbai, as though
it were the dark side of the moon.
Customer satisfaction is at the top of
everybodys mind, but a wee bit weak
on the ground.
Yet both Amazon and Flipkart
now have money to burn. In a recent
round, Flipkart raised $1 billion to
augment the $360 million it picked
up last year (see chart). A day later,
Amazon responded with a $2 billion
investment plan.
After our first year in business,
the response from customers and
small and medium-sized businesses
in India has far surpassed our expectations, said Jeff Bezos, founder
and ceo of Amazon.com, in a press
release. We see huge potential in the
Indian economy and for the growth
of e-commerce. With this additional
investment of $2 billion, our team
can continue to think big, innovate, and raise the bar for customers
u 36 u

Au g u s t 4 -17, 2 014

in India. At the current scale and

growth rates, India is on track to be
our fastest country ever to a billion
dollars in gross sales. Says Mahesh
Murthy, managing partner of Seedfund: Flipkart said check and Amazon said checkmate. Adds Ashish
Kashyap, founder and ceo of the IbiboGroup: But this is more than oneupmanship.
But why are hardnosed businessmen and investors pouring money
into India, which is still regarded as a
treacherous territory for e-commerce?
Flipkart has stopped delivery of consignments of more than `10,000 to
Uttar Pradesh because people order
just for fun and refuse to pay up
under the cash-on-delivery (cod)
system which is practically unique
to India. So Noida, which hosts
multinationals like ibm and Dell,
joins Navi Mumbai in the delivery

E-TAILING SET FOR THE

BIG LEAGUE
2013

2018

23

($ billion)

19

8
0.5
Travel
Source: Nomura

1.7
1

Digital advertising

2
E-Tailing

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B u s i n e s s I n d i a u t h e m ag a z i n e o f t h e c o r p o r at e wo r l d

Amazon $2 billion

doghouse. Amazon is also trying out

a cod system and has a pilot project with India Post. Thats good for
the postmen, regarded as the most
endangered profession in the world
today. But how Amazon will cope
with government employees, who
are amongst the most unionised in
the country remains to be seen.
Amazon is here because India is
the last big market left. According to

a Nomura report, The macro outlook

for Indias Internet sector couldnt
be more exciting: two-thirds of the
population younger than 35 years
From $10 billion in 2013, e-commerce is expected to touch $43 billion in the next five years. This will
be largely driven by online retail (see
chart).
India is the next frontier of e-tailing growth and it is not surprising
u 37 u

Au g u s t 4 -17, 2 014

that global players and investors are

eyeing this opportunity seriously,
says Pragya Singh associate vicepresident (retail) at the Delhi-based
management consultancy firm Technopak. The recent announcements
by Flipkart and Amazon are a reaffirmation of their confidence in Indias
e-tailing market potential and bodes
well for the overall space. Adds Nitish Asthana, general manager, First

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Data, a global payments processing

company: These investments are a
vote of confidence for the e-tailing
industry. Elaborates Sanjay Tripathy, senior executive vice-president
& head (marketing, product, digital and e-commerce) hdfc Life: The
valuations and investment figures
mean that the established players in
this space are ready to bet big on the
growth story.
Although e-tailing is still a small
contributor to retail, accounting for
only 0.4 per cent of the overall market, it is on a rapid growth trajectory, says Singh. It is projected that
the $2.3 billion e-tailing market in
2014 will reach 3 per cent of Indian
retail -- $32 billion -- by 2020.
Internet penetration in India is
just 17 per cent against 40 per cent
in China, 78 per cent in the US and
80 per cent in Japan. Its a different story when you look at absolute
numbers. Today China is No 1 with
550 million users; the US is No 2 with
245 million. By December this year,
India is projected to overtake the US
and take up the second slot.

Consider another metric. In

China, consumers spent $300 billion online last year. The spending
in India is a small fraction of that.
With so much money being poured
in, growth in online sales is likely to
beat projections.

e expect the online

marketplace format of
the industry to benefit immensely, resulting in an overall industry growth of
45-55 per cent cagr (compounded
annual growth rate) during 2013-14
to 2016-17, says crisil Research
director Ajay Srinivasan. Consumers too can expect better bargains as
both Flipkart and Amazon jostle for
leadership position.
Amazon is making clear to international investors that they intend
to be leaders in India, says Niren
Shah, managing director of Norwest
Venture Partners India. Amazon
didnt have a very good experience
in China. My sense is that they were
not aggressive enough. In India, they
dont want to lose the market to

THE CURRENT LEADERS

The Indian e-commerce market is
dominated by travel (%)
Travel

71

E-tailing

16

Others

Classifieds

Financial services

Note: Total market size $10 billion plus. Source: Nomura

Flipkart or someone else. I think its

going to be a two-horse race. In the
short term, both these companies are
going to spend a lot of money providing discounts
So consumers are going to win.
But in the next six-eight months,
this arms race is going to stop.
Somewhere along the way, sanity
is going to prevail.
Right now a lot of e-commerce growth is being driven by
discounts.

Local entrepreneurs have an advantage

Flipkart cofounder and ceo Sachin Bansal is confident
of taking on the worlds largest e-tailer. In an interview
with Meenu Shekar, he says being a local player,
Flipkart understands the market better. Edited excerpts
You have raised a lot of
money. What is it going
to be used for?
Our main focus will be to
build and strengthen the
overall e-commerce ecosystem in India. It is expected
that there will be more than
half a billion Internet users in
the country in the next four
to five years. This means that
a lot of commerce and shopping will move online. We
want to enable lakhs of sellers and entrepreneurs to get
online. For doing that, we will
have to solve a lot of problems in the ecosystem around

logistics, payments, packaging, cataloguing and so on.

We will invest in building technology platforms
which will enable sellers to
sell online. We will also focus
on expanding our categories
over the next 18 month and
will continue to expand the
supply chain base. We wish
to take Flipkart to the next
level by pioneering technology and supply-chain innovations that will change the face
of online shopping and one
day make us one of the biggest Indian companies on the
global map.

What will be the impact

on you of the $2 billion that Amazon is
investing?
Wireless Internet penetration
and e-commerce in India are
growing rapidly and there
are several entrepreneurs
with promising ideas who
need capital. Investors have
identified this potential and
are willing to make big bets
on organisations with great
concepts. As outside investors look to deploy capital in
India, we are confident that as
a local entrepreneurial company Flipkart has the advantage of being on the ground
and better connected to the
market we serve.
You are competing with
a $75 billion global

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Au g u s t 4 -17, 2 014

giant. What are the

advantages you can
leverage?
We are not thinking about
competition. Our focus is on
creating the best online shopping experience for customers
and we follow our own standards of business excellence.
We are looking at investments in technology that will
help us scale up the business,
create a world-class supplychain and payment ecosystem along with a superlative
talent pool and, of course, in
category expansion and seller
enablement. Our move to
delight the customer begins
with a clean, fast and engaging user-interface and ends
with smooth last-mile deliveries. That is what we want to
concentrate on right now.

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THE MONEYSPINNERS
How the e-tailing buck is divided (%)
Others

Home
furnishings

Computers

Apparel

25

21

Mobiles
Cameras
Appliances

14

19

Jewellery,
Personal,
Health
4

Total does not add up to 100 because of rounding.

Source: Nomura; figures relate to 2012

A cynical Mahesh Murthy doesnt

believe it will be a two-horse race at
all. What Amazon did was quite
unprecedented, he says. The first
statement they made were not buying Flipkart and are not interested
in buying Flipkart was a huge big
blow. Flipkart has two potential exits
one, somebody buys the company
or, two, they go public. The possible
pool of companies that can buy Flipkart is shrinking. eBay has a stake in

Snapdeal, so they wont buy. Possible

options are Alibaba (China),
or Rakuten (Japan). But
why would they want
to take on Amazon?
It (Flipkart) was built
to flip and flipping will
get harder and harder.
Flipkart cant go public in India because its balance sheet is in tatters. So
the only option is nasdaq.
But other Indian companies who went to nasdag
like MakeMyTrip and Rediff didnt have to compete with companies like Amazon.
The only slim path they have is to
out-execute Amazon. But they dont
have the dna. The guys who are running Amazon in India are veterans
of Amazon. The guys who are running Flipkart India already draw `20
crore salaries, so they dont have a
vested stake. Retorts Sachin Bansal,
cofounder and ceo of Flipkart: As
outside investors look to deploy capital in India, we are confident that
as a local entrepreneurial company

How do you see the

potential of the Indian
e-commerce market?
The e-commerce growth
story in the past few years has
been driven by an Internetsavvy crowd. An immense
opportunity is waiting to be
tapped in tier 1 and tier 2
markets and the trends one
sees in online shopping, like
shopping through mobile
phones, will come from
these cities in the future.
We will also see world class
practices in supply-chain
coming to India. Implementation of best practices in areas like inventory
management,
warehousing, and logistics within the
e-commerce industry, while
building more technological solutions to enable some
of these areas, is a given.
Mobile commerce will be
the focus area for most

Flipkart has the advantage of being

on the ground and better connected
to the market we serve We are not
thinking about competition.

ut there is bound to be skirmishing. For consumers,

this is the best of times,
says K. Ganesh, serial entrepreneur and promoter of BigBasket, Portea Medical and TutorVista.
Great deals; great service. For entrepreneurs, theres great motivation,
not just getting great valuations

online shopping companies

this year. Increased smart
phone penetration means
a greater section of our target audience is accessing our
sites through their Internetenabled mobile phones.
How much of your business is m-commerce?
Currently, nearly half of our
sales are being driven by
mobile.
The governments policy on fdi in e-commerce
is not yet settled. How
is this hampering the
industry?
The government understands
the needs of the country and
therefore is in the best position to decide what is right
for the country.
What are the problems
peculiar to the Indian

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market?
India is home to lakhs of small
and medium entrepreneurs
who have a rich catalogue
and expertise at building
great products that deserve
to be showcased on a larger
platform. These sellers often
have a limited footfall and
geographical presence. That
is something that bothers
us and thats the reason we
have been tying up with various organisations that help
in enabling sme s improve
their living standards and
scale their businesses.
Are you likely to go in
for more mergers and
acquisitions?
We are always looking for
exciting opportunities. We
are actively looking at acquisitions across areas like supply-chain, technology and
seller enablement.

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MONEY TO BURN
Top 10 PE/VC investments in the e-commerce space (in the last 12 months)

Company
Flipkart

Investors
Tiger Global, Iconiq Capital,
DST Global, others

Flipkart

Amount ($ million)

Date

210

May 2014

Tiger Global, Accel India,

Iconiq Capital, others

200

Jul 2013

Flipkart

Morgan Stanley, Tiger Global, Dragoneer

Investment Group, Vulcan Capital, others

160

Oct 2013

Snapdeal.com

Kalaari Capital, Intel Capital, Nexus

Ventures, Bessemer, Saama Capital, others

134

Feb 2014

Snapdeal.com

Temasek, PremjInvest, others

100

May 2014

Myntra

Kalaari Capital, Tiger Global, IDG Ventures (I),

Accel India, PremjiInvest, others
ers

50

Feb 2014

Jabong.com

CDC Group

28

Jan 2014

UrbanLadder.com SAIF, Kalaari Capital, Steadview

w

21

Jul 2014

Cardekho

Sequoia Capital India

15

Nov 2013

FirstCry

SAIF, IDG Ventures India, Vertex

ex
ex

15

Jan 2014

Source : Venture Intelligence

but also competing with the biggies of the world. Hopefully, some
will chuck their suited and booted
corporate jobs, give up the five-star
perks and business class travel and
start becoming an employer rather
than an employee. For the common
man, there will be more employment opportunities; most new jobs
come from startups. For investors,
its great confidence-building. It
spurs them to bet more on India and
Indias consumptions story and the
large middle class and their spending power which has been much
talked about but not translated into
reality. The policy paralysis, the retrograde steps like retrospective tax
and angel tax notwithstanding, the
large money inflow into the Indian
startup sector will boost their faith
and confidence.
IbiboGroups Kashyap has a
slightly different take. First, these
investments will go into building a
larger consumer market for product

The potential is massive

India is the fastest growing market for Amazon globally
and on track to be the fastest-ever in the history of the
global e-tailer to hit $1 billion in gross merchandise sale.
In a conversation with Meenu Shekar, Amit Agarwal, vicepresident and country manager of Amazon India, talks
about what it takes to succeed here. Edited excerpts
Your ceo Jeff Bezos has
recently announced a $2
billion investment for
Amazon in India. What
will this be used for?
Our mission in India is to
build the countrys most customer-centric company. Our
strategy is focused around
three key pillars of customer
experience offering our customers the largest selection,
reducing costs for our sellers so that they can offer low
prices to our customers, and
offering customers fast and
reliable delivery and a convenient payment and mobile
experience. These three pillars have been the integral

part of our strategy over the

past one year that we have
been in India and they continue to be our areas of focus
and investments.
What is the potential
you see in the Indian
e-commerce market?
Our $2 billion investment is
a signal of the very exciting,
never-seen-before
growth
rates and also a confirmation
of the opportunity we see
ahead of us. It is early days for
e-commerce worldwide and
also in India but the potential is massive. Customers do
more of what they find convenient. Thats human nature.

When they get more choice

at cheaper prices and delivered conveniently, they will
do more of it. This is how the
whole world is evolving and
India will evolve in the same
direction. India has a large
population and the organised
retail landscape is not very
mature. This probably makes
the opportunity here even
bigger.
What are some problems
that are peculiar to
the Indian e-commerce
industry?
Like customers the world
over, customers here value
selection, low prices and convenience and that is a huge
simplifier because Amazons
global strategy is to focus
on these three pillars. But
the execution of this strategy does differ, For example, sellers in India are new to
online and the ecosystem is

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not mature. Hence more tools

and training and capabilities
need to be built. So, we have
invested in helping sellers
get online. These are initiatives we dont need to do in
other, more developed geographies. Similarly, to reduce
cost structures for sellers we
have introduced Fulfilment
by Amazon, a service which
brings together sellers, warehousing, logistics and customer service. To make these
different pieces work together
is harder in India. Guaranteeing time-bound delivery is a
huge challenge. The digital
payment structure is not as
evolved here as in other markets. You have to build a lot of
process and technology innovations to overcome these
execution challenges which
you dont need to do in more
developed, geographies.
Given these challenges,
do local players have an
advantage over global
players? Or do global

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e-commerce. Second, these investments will create a healthy ecosystem on the supply side and will give
rise to lots of entrepreneurs on the
manufacturing and trading side.
Third, these investments will create a big startup ecosystem that will
breed on platforms such as Amazon
and Flipkart. Fourth, this also means
that verticals and niche e-commerce
category startups can potentially get
exits. All this will create an ecosystem network effect.
We believe that the funding/
investments will be utilised to
improve logistics and infrastructure
facilities, primarily in Tier II and III
cities, as well as to augment technology to improve the customer experience, says Ajay Srinivasan, director
of crisil Research. The Tier II and
III cities account for 50-60 per cent
of the current revenues of leading e-commerce players. In future
also, these will be the main growth
engines. Furthermore, the pace of

players have an edge

because of their deep

BIGGER DEALS
PE/VC investments in the e-commerce space
Amount ($ million)

No. of deals

658
553
311

2014 YTD

2013

2012

23

36

49

Source: Nomura

consolidation is likely to accelerate as

smaller players find it progressively
difficult to withstand the competition from large players.
Further consolidation may happen, says Singh of Technopak.
Smaller players in mass merchant
space will need to evaluate and determine on which aspects they will
continue to compete and how. Speciality players who are differentiated

pockets and experience?

I dont think local or global

and high-potential will continue to

inspire funding and gain traction
in the market. Some of them may
become attractive acquisition targets
for mass merchants. There is also
opportunity for such players to partner with mass merchants.

he biggest threat, of course,

is to the companies that are
competing head on with
Amazon and Flipkart. Snapdeal, which is expected to reach $1 billion in sales this year, recently raised
$100 million from a consortium of
investors, including Wipro chairman Azim Premji, Singapore-based
Temasek Holdings and Hong Kongbased Myriad Asset Management. Earlier this year, eBay had raised its stake
in the company with the infusion of
another $133 million.
Snapdeal has the parentage to
keep the wolf from the door. According to vccircle, it has also asked its
financial advisor Credit Suisse to

players have any advantage

over each other. It is not
about working skills-forward
but working customer-backwards. It is all about understanding and delivering on
customer needs by learning
the required skills, developing the required products and
innovating where needed.
Thats what Amazons culture
is all about. An innovation in
India like EasyShip (for delivery) is an example of something that we could have only
built
customer-backwards.
If we had thought of simply
bringing in what we do well
elsewhere, we would not have
got the traction that we have
got here. And just money
doesnt solve problems. Similarly, just because you happen to be a local player
doesnt make you any more
suitable to solve it. You need
a very customer-obsessed culture, the ability to innovate
and think long term. I think
it is these elements, which
are important to succeed and

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Au g u s t 4 -17, 2 014

not whether you are a local or

global player.
The government policy
on fdi in e-commerce is
still not very clear. How
does this hamper the
industry?
We have always maintained
that fdi is good for the ecosystem. Today, we are making
it easy for sellers of any size to
sell on our platform but there
is a large segment of manufacturers that sellers are unable
to buy from because of working capital constraints. fdi will
allow a company like Amazon
to source directly from these
small manufacturers. If we can
do that, consumers will get
more choice. This will result
in sellers getting more traffic,
increased sales, and ability to
lower the prices and attract
more customers. The whole
flywheel will move very effectively. By limiting the ability
to source directly from manufacturers you are blocking the
flywheel.

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scout for $300 million from private

equity investors. But there are others
who are wondering if they can keep
their perch while the big boys clash.
I see three categories in e-commerce, says Ganesh. He defines them
as horizontal e-commerce sections
and categories that can easily be just
another tab on Amazon or Flipkart.
These will be heavily challenged and
struggle for relevance and existence.
Most of them will shut down or get
merged at distress terms (a euphemism for being shut down). These
are the sites for baby products, fashion apparel, electronics etc. Vertical e-commerce domain-specific,
with their own brand, manufacturing or full integration. These will be
strong and continue to grow in the
domain. They are potential targets for
acquisition at good valuations. Examples include online grocers (see box),
and online jewellery and furniture.
Finally, niche e-commerce. They will

THE BUY BRIGADE

Recent acquisitions

Buyer

Target

Flipkart

Myntra

Babyoye

Hoopos

Tradus

BuyThePrice

Zovi

Inkfruit

BookAd
Boo
kAdda
kAd
da
BookAdda

KoolSk
kool
KoolSkool

Source: Technopak

do well as online acceptance increases

and people switch to buying online
readily. The challenge will be scalability of the business model. Examples
are community-based e-commerce
with high engagement and involvement like pets (dogspot.in) and spirituality (onlineprasad.com).
We are always looking for

exciting opportunities, says Bansal.

We are actively looking at acquisitions across areas like supply-chain,
technology and seller enablement.
The biggest imponderable in this
entire mix is the growth of mobile
commerce. We have invested a
lot in mobile experience and today
more than 35 per cent of our traffic comes from mobile devices, says
Agarwal. Recently, we have added
a feature with which customers can
add to their cart right from Twitter
itself. Says Bansal: Mobile commerce will be the focus area for most
online shopping companies this
year. Increased smartphone penetration means a greater section of
our target audience is accessing our
sites through their Internet-enabled
mobile phones. Currently, nearly
half of our sales are being driven by
mobile.
I feel the current share of m-commerce is anywhere between 20-40

Veggies make the cut

he large investment Amazon is making in India has

got one sector of the e-commerce market a shade apprehensive. Online grocers, most
of whom are just about getting their act together, are
wondering whether the retail
giant will unleash its own
offering Amazon Fresh in
India (see also page 27).
They neednt worry
overmuch.
Amazon
Fresh too is
in its salad
days. It was
beta tested in
Seattle in 2007 and has now ventured into California. While it
is getting to know its onions,
players like Google Shopping
Express and Instacart (which
are into delivery from neighbourhood stores and do not
stock the items) are also treading with caution.
What everybody regards
as the main reason for worry

is the example of Webvan, an

online grocer. In 1999, the
company raised $375 million
in an initial public offer (apart
from money from angels and
vcs). It expanded too fast and
went bankrupt in 2001. Incidentally, founder Louis Borders (also cofounder of the
Borders bookstore chain
which applied for Chapter
11 bankruptcy
protection in
2011) is setting
up
another
online
grocer, yet unnamed.
Webvan, meanwhile, is now
owned by Amazon.
The story of Webvan does
not seem to have deterred
Indian entrants in the business. There are more than a
dozen net grocers who have
sprung up, following different business model. Some
are advertising in print and
tv and targeting neighbourhoods with flyers. They are

generating a lot of noise.

There is only one principal player - BigBasket.com,
says K. Ganesh, serial entrepreneur and promoter of
BigBasket, Portea Medical and TutorVista. The
others are one city;
they have limited capital and are struggling to scale.
Several
players have raised
money,
however (see chart).
The activity
in this domain is
in line with the
general adoption
of online shopping,
says Nitish Asthana,
general manager at
First Data, a major
in electronic payments. As consumers
get more comfortable shopping online, they are moving
to newer categories where
good value is being delivered.

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Au g u s t 4 -17, 2 014

Consumers with busy lifestyles

are opting for online grocers,
and when their experience is
good, they spread the word.
We believe that the key point
is the quality and range of
products being offered at an
attractive price and without
the customer having to step
out the door.
Food is the largest retail market, says
Ganesh. It accounts
for more than 70
per cent of sales
in the countrys
$500 billion retail
business. Ganesh
gives some other
reasons. Physical retail is handicapped in grocery
- high rents, high
shrinkage and high
inventory costs. Second,
customers love the service. Finally, there are
high entry barriers as it is
the most difficult-to-execute
category.
The entry barrier depends
on the model you follow. The

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per cent depending on the category

the player is operating in, says Tripathy of hdfc Life. Fast-moving
services like ticketing have a higher
m-commerce share compared to
other categories. Having said that, I
foresee this percentage to go beyond
50 per cent in the near future once
the players enhance the purchase
experience via mobile devices. Adds
Asthana of First Data: Product and
price research and final purchase
often cut across mobile phone and
in-store activity. Soon this will translate to payment transactions being
done on mobile.

ndians have taken to smart

phones. They have trickled
down to rural areas. These are
very often those rejected by
city dwellers; the millennium generation needs to change their phone
the moment a new model is out. The
inventory of such phones in villages

is something that nobody has accurate estimates on. But

just as the mobile
catalysed communication, the smartphone
will catalyse commerce.
And e-commerce in
particular will be the
gainer.
But, at the end of the
day, is it an equal battle?
Flipkart reached a valuation of $7 billion after its
latest round of fund raising. Amazon, a listed company, has a valuation of
$140 billion. It has been living in a rarefied world where
numbers dont seem matter
to investors. Its price/earnings ratio
has at times crossed 3,000, when the
market as a whole is an acceptable
18. But Amazon is taking a knock
at last. The shares fell 10 per cent as
the company forecast flat revenues

for the net quarter and a loss that

might be as high as $455 million.
Meanwhile, Alibaba, which enjoys
a monopoly in China, is pawing the
ground for a New York listing. Analysts estimate it could be valued at
$100 billion. Alibaba is already sourcing from India, from the very sort of

Now there are 220. Like Big- personal care, household

Delhi-based AaramShop is a Navi Mumbai and Thane.
Our sales are growing Basket, EkStop believes in an detergents, kitchen ware,
facilitator. It takes orders from
customers and arranges for at 20-30 per cent a month, inventory-based model.
otc, breakfast, snacks and
We have a bunch of 15 still counting. You will also
delivery from the nearest
investors who have been very find niche product like bagels
kirana shop.
helpful, says Chopra. A recent and shor sharaba.
You need an
addition to that roster is Roninventory-led
The
most
successful
nie Screwvala, whose invest- examples of online grocermodel, says
ment arm Unilazer Ventures ies are to be found in the
Ganesh. Some
- has picked up a 25 per cent UK, where ocado.com is the
of the smaller
stake in the company.
players buy from
largest online food retailer in
says Sumat Chopra,
Another Mumbai-based the world. Its revenues have
large stores and supply the goods to customers. cofounder & ceo, EkStop. player is LocalBanya. It crossed $1.3 billion and it
This is not scalable.
From January this year alone, started in May 2012 and has a market cap of $3 bilThe Mumbai-based EkStop they have tripled. Thats also claims a range of more than lion. Another big boy is YihaShop is an e-commerce, reflected in the employee 8,000 products. Today, we odian in China. Walmart has
phone-commerce and call- numbers.
When
EkStop offer you all categories rang- a 51 per cent stake in the
centre retailer specialising flagged off in 2011, there ing from fruits, vegetables, company.
in home deliveries. It is clear were only four employees. exotic vegetables, groceries,
Are these really online
about where its
businesses? It is
HOT POTATOES
mission lies: to win
not just home
the trust of consumdelivery
but
List of PE deals in the grocery e-tailers space
ers. Its not just grohome
delivery
Company Investors
Amount ($ million)
Date
ceries; EkStop also
the same day.
Ekstop
Jungle Ventures
NA
Jun 2012
provides
houseThis is, in a way,
hold supplies, pera hybrid model,
Ekstop
Unilazer Ventures
NA
Jan 2014
sonal care, baby
says Ganesh. It
BigBasket Ascent Capital
7
Feb 2012
care and health
is more brick than
BigBasket Ascent Capital
3
Oct 2013
care products and
other e-commerce
ZopNow
Accel India, Qualcomm Ventures, others
2
Jun 2012
stationery. It has
businesses
and
spread its wings to
more click than
neighbouring areas Source : Venture Intelligence
physical retail.

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Au g u s t 4 -17, 2 014

Cover Feature

B u s i n e s s I n d i a u t h e m ag a z i n e o f t h e c o r p o r at e wo r l d

Employees in the red?

hen a start-up goes

to a top management
school to recruit, the promoter is selling a dream and
a four-letter word - esop.
The real dream is that the
Employee Stock Option Plan
will become valuable when
the start-up clicks and finds a
buyer. Which freshly-minted
mba doesnt hope that he will
be a millionaire by 30, to take
up an encore career as angel,
sugar daddy or even a serial
entrepreneur?
This is why so much attention is being focussed on
redBus the posterboy of
e-commerce in India. In June
2013, the ticketing portal
was sold to the IbiboGroup
for Rs800 crore. This was the
largest deal of its kind and
was regarded as the coming
of age of the Internet entrepreneur in India.
The trouble is that excepting a few people, nobody
at redBus came within sniffing distance of the money.
Founder and ceo Phanindra Sama made a killing. The
rank and file was left wondering if their esops were just so
much bumf. Not that everybody had esops, but everybody did have expectations.
Some senior people walked
out; juniors felt they had
been taken for a ride.
One would have presumed
that the esop fiasco at redBus
was dead and buried. But in
mid-July, financial newspaper
Mint came out with a report
titled: The redBus sale: A
cautionary tale. How the sale

of the successful bus ticketing

startup to Ibibo created a rift
among its cofounders, senior
executives and staff.
The recent article about
redBus esops seems more
malicious than material, says
Ashish Kashyap, founder &

ceo, IbiboGroup. Ibibo is part

of Naspers, a South African

multimedia company. The
event is more than one year
old. We have had a sound
management team for the
past one year, a new ceo and
another 650 people in the
company doing their stuff
and working hard
to create a robust
ecosystem.
Sama was not
available for comment; he did not
respond to e-mails
and his phone was
switched off. redBus
appears to have disowned
him. Phanindra Sama is no
longer associated with redBus, says new ceo Prakash
Sangam. He has completely
exited and moved on.
So, what was the problem
with the esops? It turns out
that very few people actually
had them. We as buyers met
all obligations, says Kashyap.
Folks who had vested esops
were paid in full and the folks
who vested esops later have
also been paid. We gave

small and medium enterprises Amazon and Flipkart are talking about.
It also entered the US this March.
An Indian entry can be expected
after the ipo goes through. Flipkart
has a market share of less than 5 per
cent (Alibaba has 85 per cent of the

IbiboGroup esops to these

people. That is plus plus.
Then there were a large number who never had esops; a
large number has been issued
IbiboGroup esops.
From our point of view,
esops are an internal matter of the company, says
Mahesh Murthy, managing
partner of Seedfund, one of
the earliest investors in redBus. Every company has a
different esop culture. As far
as the norms we had subscribed to when we invested,
every one of them was fully
met. When it comes to how
different employees were
treated within the company,
those are things that are com-

pletely outside our purview.

There are a bunch of people who probably felt they
should have got more. But
it is not for us to comment.
As investors, we encourage
broader esop pools. But we
leave that to the discretion of
the promoters; thats clearly
the management teams bailiwick. Kashyap sums up:
Out of the 650 employees,
(there were) two disgruntled
folks. Thats about it.

Chinese e-commerce market). In revenue terms, Alibaba stands at $270

billion, Amazon S74.5 billion and
Flipkart $1 billion.
Bansal is unfazed. An immense
opportunity is waiting to be tapped,
he says. Agarwal agrees: It is very
u 44 u

Au g u s t 4 -17, 2 014

But
werent
people
unhappy that they didnt get
part of the Ibibo largesse?
Perhaps. But people dont
feel the same any more,
says Kashyap. Those with
negative feelings have been
out since the past one year.
Sangam says its business as
usual. Recently, redBus hit
the milestone of clocking
30 million seats sold since
inception. Adds Kashyap:
redBus is the largest online
bus ticketing platform in
India. When we acquired
redBus, it was 4x the size of
the nearest competitor. We
are now easily 10x.
The redBus story highlights an issue that is going
to increasingly occupy centrestage as more startups find buyers. People
in India dont understand
equity, says Sumat Chopra,
cofounder & ceo, EkStop,
an online grocer. At EkStop,
only a handful of
people have esops.
Most
employees would prefer
a 5 per cent increase in salary rather than esops. But
he agrees that at redBus, the
vesting schedules were probably unfavourable.
Chopra, who was with
Goldman Sachs in New York
before he turned entrepreneur, is an expert on esops.
He says that he has started
an education programme for
his staff. As an industry, we
have to educate our people,
he says. It wont be easy holding classes on underwater
options, accelerated vesting
and cliffs. Too many people
will fall off midway.

early days in India for ecommerce. It

is not even Day 1. By Day 2, hopefully, they will get their jigsaw pricing right and accept that Noida and
Vashi are parts of India.
u Pa r t h a s a r at h i S wa m i ,
M e e n u S h e k a r a n d Ma n s i M e h t a