What does the Flipkart acquisition of LetsBuy mean?

Let’s look at the facts first

1. Flipkart, India’s most successful eCommerce company and definitely the most talked about, reportedly worth $1 Billion, acquired one of its biggest competitors LetsBuy for a reported amount of $25 Million to $30 Million (Cash and Equity).

2. Letsbuy, one of India’s top eCommerce companies, with an approx topline of 15 Crore per month, was looking at raising another round of funding but just could not.

3. Flipkart has been funded to the tune of $ 150 Million and LetsBuy received around $6 Million.

4. Both of them were funded by Multiple VCs. Tiger Global and Accel Partners were common VC firms.

5. Flipkart, though known for its Books category, offers multiple categories and Letsbuy concentrates primarily on consumer electronics.

6. This is Flipkart’s 4th acquisition of a startup, but its first of a competitor.

 

What does it all mean?

Consolidation – Over the last 3-5 years a number of eCommerce companies have sprung up almost out of nowhere. Moreover a number of offline players are also getting into the online space. Sites often indicate that it takes less than Rs. 1,00,000 to set up your own eCommerce site. With a number of entrepreneurs jumping in to build sites, offering categories across the spectrum, to super specific niches, to weird things which you may never want to buy, the era of unchecked eCommerce proliferation has reached a certain inflection point. The acquisition of a fairly ‘Successful’ eCommerce company which has visibility on TV, Radio and other mediums, just like any other national brand, means that it will now take more than just great topline to convince your investors and others for further rounds of investment. Lets be clear about this, LetsBuy was acquired (in part) because it and Flipkart had common investors and they wanted greater scaling up of Flipkart’s business. But the real kicker was the fact that despite impressive exponential growth and topline, existing investors of LetsBuy just did not think that another round of investment was a great idea. A squeeze on investment funds and requirement of exits will lead to consolidation in the market.

2. Changed funding dynamics – Venture Capital money is now going to turn smarter than what it was before. Startups which are general or broad category players, will find fresh funding an issue to deal with. Since new VC money is limited in supply and now looking for a few quick exits, the bet is that acquisition worthy targets, like startups which help in the process or transaction of eCommerce, specific/niche category eCommerce players, logistics players, Warehousing etc will be of great interest due to the intense scaling up requirements of the eCommerce ecosystem. So no more blind funding, though the famous herd mentality of funding certain startups is expected to continue.

3. Development of an ecosystem – A natural progression of the above point, it means that Startups like Chottu (End mile logistics players) will start supporting and creating an entire eCommerce ecosystem. We may soon see eCommerce Social Media, warehousing, SEO, GUI etc startups, which essentially take a small yet important bit of the eCommerce ecosystem and make it better than what it already is. This will lead to greater value and efficiency for major eCommerce firms. This in turn will lead to greater value and experience for the end customer leading to exponential sales in the future for established Ecommerce players.

 4. Competitive mindset – Till now eCommerce and other startups in general, considered the ability to capture the market, scale up and deliver products/services to customers as their biggest challenge. In short, their own ability and the lack of market infrastructure was ‘Competition’ for most. However with the substantial growth in the number of ‘big brand’ startups (Snapdeal, Myntra, Fashion&You, Flipkart etc) over the last couple of years and an aware, value conscious consumer set, this is leading to inter-startup competition of sorts. This is a great sign as now Startups can’t just hope to survive on building and tweaking the same mousetrap. They will have to reinvent the mousetrap or find a better way of killing mice altogether.

5. VC exit issues – It’s a fact, that with the volatility in the economic scenario and no great history of exits for the Indian Venture Capital market, VCs are looking at results in the short term to get the money in from investments made over the last few years. Since no major Startup is anywhere near an IPO, acquisitions are seen as the way forward.

6. Reality Check for Startups – You can have great topline and yet not get funded in the next round. VCs may force you to sell out if they don’t see an exit in the medium term. Most retail consumer driven startups will burn cash in the medium term. The amount of VC money ‘readily’ investible is overstated. Vanilla (undifferentiated) eCommerce was yesterday’s great idea, Niche eCommerce is today’s good idea and we better start working on tomorrow’s idea. There is no shame in selling your startup if it will ultimately lead to greater value for consumers and stakeholders. Only the well funded survive the ‘Cash Burn’ reality of eCommerce. Good is not good enough, you have to be world class now.