Flipkart raises $1b funding in scale-up bid

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Eyeing mobile e-commerce, Bansals plan tech innovation

Flipkart, India’s largest e-tailer, has raised fresh $1 billion in one of the largest funding rounds in a bid to aggressively scale up after Amazon's rapid expansion triggered intense competition.

Flipkart’s founder Sachin Bansal said, “This new funding will enable the company to step up our investments for innovations in products and technologies, setting us up to become the mobile e-commerce company of the future. This funding will help us further accelerate momentum and build our presence to become a technology powerhouse.”

Bansal said that the Internet will improve the quality of life, and e-commerce is going to play a huge role in this change.

“The focus at Flipkart is to continue to make shopping online simpler and more accessible through the use of technology. We have close to 22 million registered users today. We handle 5 million shipments a month. These numbers were unheard of a few years back and we are excited about the scale we have managed to achieve. But what is even more exciting is the huge opportunity we still see before us,” Bansal added.

This new milestone comes within months of Flipkart becoming the first e-commerce company out of India to hit $1 billion in gross merchandise value, the company said.

“We want to enable every Indian to either shop or sell online. And we believe that the power of the mobile Internet is going to help us achieve this goal. By 2020, India will have more than half a billion mobile Internet users.

Our intense focus on mobile and technology puts us in a unique position to take advantage of this massive opportunity,” Bansal added.

Singapore sovereign wealth fund GIC participated in the fundraising along with existing investors Tiger Global Management and the South African media company Naspers.

Experts said that with Amazon coming in the picture, competition has intensified. Amazon, which entered India last June, has taken on rivals by slashing prices, launching next-day delivery, adding new product categories and embarking on an aggressive advertisement campaign.

Pragya Singh, associate vice president, retail, Technopak Advisors, said, “The valuations in e-commerce are high and they have always been high. As far as Flipkart is concerned, it is difficult to comment on the valuation of the company as whatever is reported in the media is not something quoted by the company. Each time Flipkart raises funds, doubts about valuation and impending bubble comes up. Only time will tell whether the valuations were just high or too high.”

As far as the e-commerce industry is concerned the fundamentals are strong with demand and sales growing. Back-end infrastructure in terms of vendors, technology and logistics is strong and it is clear that e-commerce industry is here to stay. Earlier VC/PE funds have been investing in several companies. Now they are investing in large horizontal or leading vertical players. They too should be having a view on why it is justified to invest such huge amount in one company and how they will exit.

With Amazon coming into the picture competition has become fierce in the sector as it is bidding for the leadership position. Flipkart has the advantage of being a home company. But it also has to put its back-end in place to retain the leadership position. It is true that part of the funds will be spent on acquiring customers through discounts and offers as low price is still a driver for e-commerce in India, Singh added.

The companies vying for a bigger slice of the Indian online retail market include Flipkart, Snapdeal, Jabong, and global giants Amazon and eBay.

The online shopping trends of Indian consumers have witnessed a significant change in 2013, which recorded 85 per cent rise in online trends over the regular shopping than last year’s 65 per cent, according to an Assocham report.

“The increasing Internet penetration and availability of more payment options boosted the e-commerce industry in 2013. Besides electronics gadgets, categories like apparel and jewellery, home and kitchen appliances, lifestyle accessories like watches, books, beauty products and perfumes, baby products have witnessed a significant upward movement in last one year”, said, D S Rawat, secretary general.

Rawat said, India’s e-commerce market was worth about $2.5 billion in 2009, it went up to $6.3 billion in 2011 and to $16 billion in 2013 and is expected to touch whopping $56 billion by 2023 which will be 6.5 per cent of the total retail market.

According to Rahul Khanna, managing director of venture capital firm Canaan Partners, Flipkart has indicated that the company would be interested in acquisitions leading to further consolidation in the industry. However, further consolidation in the space seems unlikely in the near future.

“Beyond the top three or four players, there are not many assets to be bought. The question is about what is available to buy and the answer is not much,” Khanna added.

E-commerce as a business needs deep pockets and the money right now is coming only in the form of external funding. Almost none of the players are making money. But they hope to do so in the future given the premise that e-commerce is a highly under-penetrated segment, said Khanna.

“As an investor, I feel that Flipkart’s merger with Myntra and the fresh rounds of funding, they are going the Amazon way. They have become a key player in the market and have also indicated that they would like to be independent,” he added.

Flipkart is India’s leading e-commerce marketplace offering over 15 million products cross 70+ categories including books, media, consumer electronics and lifestyle.

(With inputs from Sangeetha G and Shyamala S in Chennai)


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