Lethargy haunts e-commerce fundraising

Lethargy haunts e-commerce fundraising

Reflecting the tardy state of affairs in the fund raising efforts of Indian e-commerce companies, a report from investment bank Allegro Captial says that the first quarter of 2013 witnessed zero fresh Series A investments with merged entities getting more financial support.

The report titled ‘E-commerce Investment and M&A Activity’ states that the first quarter witnessed incumbent investors putting more money into select portfolio firms and nine follow-on investments with a cumulative value of $155 million.

Eleven horizontal e-commerce portals got a maximum of $458 million in investments during the first quarter. This includes 17 apparel and accessory companies bagging $189 million and three private labels and five baby and kidswear companies bagging $41million and $42 million, respectively. Two jewellery e-commerce companies also received $30 million.

According to the study report, most of the investor-driven M&As were cashless stock deals in the same companies they were already invested in. Key deals during the quarter include Nexus and Bessemer roping in eBay and Recruit Cos for a $30-50 million investment in Snapdeal. Helion’s follow-on investment of $12 million in Babyoye & Hoopos merged entity was also notable. SAIF Partners did a follow-on investment of $10 million in the merged entity of Zovi & Inkfruit.com.

While 2012 witnessed horizontal e-commerce players acquiring category leading firms, in 2013, the emerging trend is Tier-II players merging and raising funds to compete effectively against leaders.

The study predicts that Series B and follow-on rounds will continue to be key challenges for most e-commerce companies, except the category leaders and the top three or four horizontal players.

“Series A funding for e-commerce will be virtually non-existent for the next 12 months but e-commerce services companies in logistics, payments, front-end technology, etc may see some investments,” said Allegro Capital analyst Deepak Srinath in the report.

The study says that 25 per cent of the venture-funded e-commerce companies in India who pivoted from their mainstream activities are doing well in the segment. Pivoted e-commerce companies offer more choice and a bigger basket to their current user base.
These companies also try to increase the average revenue per user (ARPU) and lifetime value of an acquired customer. They also succeeded in adding segments which are complimentary, offer better margins and make strategic sense, the report noted.

The study also found that the Indian e-commerce market is at a similar stage to what China was five years ago.

“Horizontal players are adding third party sellers (marketplace) for certain categories to capture the long tail of vendors and reduce inventory holding costs, similar to Amazon’s blended model,” says the report. It also predicts offline brands tapping the online market and will be a significant growth driver.

By 2016, the Indian e-commerce market is set to touch $13 billion, with significant contribution from marketplaces and offline brands. Marketplace models will level the playing field by allowing the long tail of suppliers/ manufacturers from Tier 2 or 3 cities to service national demand.

The report pointed to the fact that 53 e-commerce companies have raised $853 million in venture capital over the past 3 years.

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