Some feel the whole episode signals a full pivot, while others believe Snapdeal is into something strategic
Over the past six months, Indian media was busy preparing the skeleton for this year’s mega story — that of a merger between struggling e-commerce marketplace Snapdeal and bigger rival Flipkart. The media was talking to VCs, sources, and industry leaders to present a very detailed story about the merger. After all, it would have created huge implications in the e-commerce market in India if it materialises.
But what happened was just the opposite. Snapdeal snubbed Flipkart and decided to go solo. After the decision was made, Snapdeal said in a statement: “Snapdeal has been exploring strategic options over the past several months. The company has now decided to pursue an independent path and is terminating all strategic discussions as a result.
“Snapdeal’s vision has always been to create life-changing experiences for millions of buyers and sellers across India. We have a new and compelling direction – Snapdeal 2.0 – that uniquely furthers this vision and have made significant progress towards the ability to execute this by achieving a gross profit this month. In addition, with the sale of certain non-core assets, Snapdeal is expected to be financially self-sustainable,” the statement read.
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Meanwhile, Snapdeal founders Kunal Bahl and Rohit Bansal sent an email to their employees, which read:
Dear Team,
Over the last few months, our company has been engaged in strategic discussions with other players. A lot of time and effort has gone into the process from all participants in this exhausting process. The process has led to intense speculations and uncertainty for our team, partners and shareholders. And now it is time to finally put an end to this saga.
We will be continuing the Snapdeal journey as an independent company. As we have often discussed, the opportunity of e-commerce in India is immense, and the surface of this $200 Billion market has barely been scratched yet. We have a tremendous team, millions of loyal customers, hundreds of thousands of motivated sellers and a phenomenal platform that has been built with years of effort. All the ingredients of success have always been there in our company. And after the last few months of tumultuousness, it is time to focus on the business and leverage all our strengths to progress towards our vision of building the best marketplace to connect buyers to sellers in India.
The good question to ask is why are we moving down an independent path, when so much effort went into determining a strategic combination. There are a few reasons for this, which go beyond the fact that the deal being contemplated was incredibly complex to execute as reported extensively by the media.
Firstly, there isn’t going to be one successful model for e-commerce in India. In every market, there are multiple successful e-commerce businesses, and as long as one’s strategy is differentiated and has a clear path to success, there is a great company that can be built. We firmly believe in our new direction – Snapdeal 2.0 – part of which is a laser focus on being a champion for all sellers in India, enabling anyone to setup a store online in a few minutes and focusing on providing large selection of products at great prices to consumers.
Secondly, we have made tremendous progress towards this new path over the last few months and are already profitable at a gross profit (a.k.a. net margin) level, with clear visibility to making upwards of INR 150 Crores in gross profit in the next 12 months.
Finally, with the ongoing streamlining of costs and sale of some of our assets, such as Freecharge, we are financially self-sufficient as a company and don’t need to raise additional capital to reach profitability. Needless to say, we will need to keep a tight control on our costs and work towards becoming a hyper efficient culture delivering profitable growth, month on month.
Many of our team members have spoken with me over the last few weeks, reiterating their interest in the fact that Snapdeal should continue in its independent capacity. The passion our team has for our purpose, and the signs of progress being very visible are key reasons why our team continues to be inspired to pursue an independent path. So, the decision is made. There is zero ambiguity. We will be running the company as we have been and rapidly moving ahead with our mission.
Success is never final, failure is rarely fatal; it is the courage to continue that counts. Let’s work together to make Snapdeal 2.0 a super success!
Thanks!
Kunal & Rohit
As per various media reports, Bahl and Bansal had never been in favour of a merger with Flipkart. If not for SoftBank — Snapdeal’s largest investor — which has been aggressively pushing for a merger with Flipkart, the duo would not have considered the deal in the first place. But with just under 6.5 per cent stake in the company, Bahl and Bansal could not have done much. More importantly, a distress sale with Flipkart will not bring any gains for either the founders or other stakeholders.
At the end of the day, Snapdeal decided to tread an independent path. What worked in favour of Bahl and Bansal was a clause in the merger agreement: Flipkart wanted all of Snapdeal’s shareholders to give their assent to the merger and sign an indemnity agreement taking on liability for anything that may arise. However, Snapdeal founders and some of its stakeholders were not in agreement with this. And this eventually led to the collapse of the deal.
Obviously, some of the Snapdeal’s stakeholders were not happy, with Kalaari Capital’s Vani Kola, who until recently was in the Snapdeal Board, explicitly voiced her disappointment about Snapdeal’s decision in a TV interview.
No doubt, walking out of a deal with the mighty Flipkart was one of the boldest decisions by Snapdeal founders. Everyone that e27 talked to for this story is in agreement with this. But was it the best decision? Or simply a blunder?
The jury is still out on this.
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e27 talked to a few people in the startup and investments industry in India to know their view on Snapdeal’s decision to go solo. Most people we talked to for this story requested anonymity, while some other were willing to go on record.
“We should appreciate the balls,” said an industry watcher, who has been tracking the deal for long.
“A bold decision, but I think it was existing investors than the ‘balls,” said an active angel investor. “It was tough. I hope they will be able to prove the rationale behind this decision in the coming future.”
Another industry watcher is also in agreement with this: “Yeah, it could be the investors’ decision. Anyway, it’s better to have some competition than monopoly in the market. Hopefully the existing investors support them.”
Another person, a known name in the food delivery space in India, said: “I guess they are better off merging considering the huge capital requirement to fight the battle with Amazon and Flipkart with the war-chest they possess.”
Some others feel the whole episode signals a full pivot. “If the details in the mail to employees and Snapdeal’s plans to axe 83 per cent jobs, they are into something strategic,” said another observer, a serial entrepreneur.
Another person, who heads innovations at a leading grocery retailer in India, said: “I like the idea of entrepreneurs calling the shots. Investor arm-twisting especially by SoftBank was going overboard.”
“They should be having about INR 500 crore in after the sales of Vulcan Express. So they have INR 40 crore a month to burn to sustain for a year. They might also sell the logistics business and get more money. From what has been speculated, it looks like they will allow vendors to set up stores online,” said another active investor. “If they can build a business which is profitable, all of its investor will come back and invest. Hopefully, they stop the discount business also.”
Some others feel that no one is too big to fail. “Others have already gained a lot at Snapdeal’s expense. Flipkart and Amazon have already started focusing on next frontier, grocery, while Snapdeal is still grappling with existential issues,” another industry watcher said.
But this person does not agree: “Snapdeal cannot play Amazon’s game with 200 employees and a few hundred bucks. Snapdeal 2.0 is some company that has nothing to do with 1.0. They may succeed or die a painful slow death, but they won’t be a top e-commerce marketplace.”
Another person, an active investor in India, said about Snapdeal: “Just seemed like a very weak company all through. That was built on PR and marketing. No innovation, no tech, lots of rumours about frauds.”
According to Nitin Sharma, former Principle at Lightbox Ventures: “Consolidation is theoretically the right answer for various spaces in India, including in e-commerce, given where capital supply and capital efficiency is. I think it won’t be responsible to comment on the various internal dynamics or investor goals with Snapdeal, without all the facts. But maybe the team feels buoyed by Infibeam’s IPO and high multiples even if an independent path is hard and irrational. Where Snapdeal establishes differentiation now with limited capital is the question.”
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