The latest developments come within days of Snapdeal agreeing to sell its digital

payment platform, FreeCharge, to Axis Bank for Rs 385 crore.

n August 2015, Snapdeal founder and chief executive officer (CEO) Kunal Bahl
claimed in an interview with an Indian newspaper that his company would
topple arch-rival Flipkart from its perch at the top of the Indian e-commerce
market. He gave Snapdeal seven months to do so.

The one thing I am very, very clear about right now is that I think were going
to be No. 1 (in terms of sales) by March 2016. I think were going to beat
Flipkart by then, Bahl said in an interview with The Economic Times. Im
very confident that whatever their (Flipkarts) numbers are, we will be ahead
of them by March (2016).

To say now that the tables have well and truly turned would be a vast
understatement.

Flipkartwhich this month raised a mammoth $1.4 billion in fresh funding

from investors led by Tencent Holdings Ltd, eBay Inc. and Microsoft Corp.is
having the last laugh.

And Snapdeal is in a desperate fight to stay afloat as it battles a near-death

situation; Bahl has changed his tune in recent weeks and months to indicate
that the fate of the company is out of his control and is in the hands of
Snapdeals investors.

And the online marketplaces largest investors, led by SoftBank Corp., Kalaari
Capital and Nexus Venture Partners, have virtually given up the fight and
conceded defeat.

To top things off, Snapdeals largest investor, SoftBank (ironically) is now

trying to engineer a sale of the e-commerce firm to Flipkart, amid a
contentious boardroom battle against Kalaari and Nexus over the sale,
according to at least four people aware of the current discussions.

Snapdeals board has also held talks with Paytm E-Commerce for the sale,
which could be at a fraction of the companys peak valuation of $6.5 billion,
the people said. Snapdeal was among the first Indian unicorns, or start-ups
valued at $1 billion or more.
An email sent to Snapdeal on Wednesday, 26 April, did not elicit a response as
of press time. Snapdeal has previously declined to comment on the
developments at the firm. Requests for comment sent to SoftBank, Kalaari and
Nexus previously elicited no response.

The developments of the past few weeks and months at Snapdeal raise the
inevitable questionhow did things go so horribly wrong for Snapdeal so
rapidly?

Culmination of errors
According to company insiders, investors and the people mentioned above,
Snapdeals current predicament is entirely due to a culmination of a series of
errors by its co-founders and its largest investorsSoftBank, Kalaari and
Nexus.

It all started in September, when Snapdeal launched an expensive re-branding

exercise to transform its image, as it looked to stay relevant in a bruising
market share battle with larger rivals Flipkart and Amazon India.

This despite Snapdeals board members being aware at the time that the
online marketplace could witness a rapid erosion in its valuation, in the event
of a fund-raising or a potential salewhich, in turn, would trigger a
boardroom fight between the investors over the valuation of Snapdeal.

For the re-branding campaign, Snapdeal forked out nearly Rs200 crore and
held at least three heavily advertised sale events, in an attempt to stanch
market share losses to Amazon and Flipkart.

In July 2016, Snapdeal, which had raised some $1.4 billion since October
2014, still had about $500 million left. Those cash reserves were wiped out by
discounts and marketing, along with its daily expenses and those at its
payments unit Freecharge, the people mentioned above said.

At the same time, it rejected at least two funding offers because of differences
at the board between SoftBank on one hand, and Kalaari and Nexus on the
other.

Its partly a case of brinkmanship by the investors and founders. Everyone

expected the other to back off but no one has been willing to budge. SoftBank
had assured Snapdeal that it would invest in Snapdeal in the worst-case
scenario. But they obviously wanted the funding on their terms. This wasnt
agreeable to the others, said one of the people cited above.
Valuation differences
Even as late as January this year, Snapdeal was spending heavily, expecting
funds from new investors or SoftBank, despite the differences between
investors. But no such deal materialized. Sales crashed in February and March
as it cut spending. It cut hundreds of jobs and shut Shopo, a consumer-to-
consumer marketplace.

SoftBank is now keen to sell Snapdeal at a cut-price value, but that deal is
being opposed by Kalaari and Nexus, since such a deal would value Snapdeal
at a fraction of its peak valuation of $6.5 billion and severely reduce the value
of the holdings of Kalaari and Nexus, which count Snapdeal as their largest
investment. Such a deal would result in a huge blow to Kalaari and Nexus, as it
would put the future of their India strategy in jeopardy, as both VCs placed
such a huge bet on Snapdeal and their future is literally riding on the outcome
of this deal.

The two VCs, along with the Snapdeal co-founders, have demanded that
SoftBank buy out their stakes. At the last board meeting, SoftBank expressed
interest in partially buying out the stakes of Nexus and Kalaari, but is yet to
agree to those terms, the people mentioned above said.

SoftBank owns 33% in Snapdeal, while Nexus owns roughly 10% and Kalaari
nearly 8%, according to documents with the Registrar of Companies. Snapdeal
founders Bahl and Rohit Bansal together own less than 6.5% in Snapdeal after
cashing out part of their stakes.

Uncontrolled spending
Much before the current boardroom battle at Snapdeal played out, signs of
trouble and what was to come were starting to emerge in the middle of 2015
when Amazon India was increasing its market share by leaps and bounds at
the expense mainly of Snapdeal.

During the go-go days of 2014 and 2015, Indias largest consumer Internet
start-ups led by Flipkart, Snapdeal, cab-hailing company Ola and Paytm
raised several billions of dollars from investors led by Tiger Global
Management LLC, SoftBank, DST Global, Naspers Ltd and Accel Partners LP.

The mammoth funding rounds at the time were deemed necessary for the likes
of Flipkart, Snapdeal and Ola to grow rapidly at the cost of near-term profits
and keep deep-pocketed American rivals Amazon.com Inc. and Uber
Technologies Inc. at bay.
Founders at Indias foremost e-commerce start-ups were given the licence to
spend heavily to fund deep discounts to attract more online shoppers and
focus on one thing and one thing alonegaining market share at the expense
of Amazon India.

In Snapdeals case, it enjoyed the blessing of its largest backer, SoftBank,

which till date has pumped in $900 million into the online marketplace.

From the time it pumped $627 million into Snapdeal in October 2014,
SoftBankrepresented on Snapdeals board by Nikesh Arora at the time
encouraged the online marketplace to go all out and spend heavily on
marketing, discounts, logistics and warehouses, without caring about cash
burn rates.

Trailing rivals
Snapdeal, which had originally been started as a daily deals site in 2009 by
Wharton graduate Bahl and Indian Institute of Technology-Delhi alumni
Rohit Bansal, duly obliged.

But even as it expanded rapidly, it lagged Flipkart and Amazon on key

parametersmost importantly, customer satisfaction and brand trust.
Snapdeal also hired thousands of employees in an unplanned manner rapidly
over a short period of time.

These shortcomings in Snapdeals arsenal were brutally exposed during key

discount-driven festive sale months, when Flipkart and Amazon pulled away
comfortably ahead of the rest.

More worryingly for Snapdeal, sales growth started to stagnate during late
2015 and early 2016, despite an increase in the number of Internet shoppers.
According to a 2015 report by Silicon Valley-based VC firm Kleiner Perkins
Caufield Byers, the number of Internet users in India grew by 40% in 2015 to
277 million.

While rival Flipkart at the time was struggling to grow sales, Snapdeals plight
was worse. From November 2015 to April 2016, Snapdeal in fact witnessed a
decline in monthly revenue. To compound matters for Snapdeal, existing and
new investors promptly refused to pour fresh funds into an e-commerce firm
that was already starting to be seen as an also-ran against Flipkart and
Amazon.
New foreign direct investment rules introduced in March 2016 prohibited
online marketplaces from influencing product prices and forced online
retailers to put sales events on hold. Snapdeal was thus forced to cut discounts
and curb advertising spending in order to preserve its dwindling cash reserves.
That lasted till SoftBank again urged Snapdeal to undertake the rebranding
exercise in September 2016, amid worries over further market share losses to
Amazon and Flipkart.

Conceding defeat
The events of the past 6-12 months culminated in an email to all employees
from Bahl and Bansal earlier in April, where the founders indicated that the
fate of the company is out of their hands with its investors driving the
discussions around the way forward.

The email marked a startling confession of the mistakes Bahl and Bansal (and
also the investors) made over the past few years that have culminated in
Snapdeals current predicament.

There has been a lot of media reporting and speculation around Snapdeal
recently. While our investors are driving the discussions around the way
forward, I am reaching out to let you know that the well-being of the entire
team is mine and Rohits top and only priority. We will do all that we can, and
more, in working with our investors to ensure that there is no disruption in
employment and that there are positive professional as well as financial
outcomes for the team as the way forward becomes clear, Bahl and Bansal
wrote in the email, a copy of which has been seen by MintAsia.

The email was sent to Snapdeal employees with the intention of boosting the
morale of the company, which has been hurt by large-scale layoffs, falling
monthly sales and shutdowns of under-performing business units such as
Shopo.

SoftBanks strategy
At the core of Snapdeals current troubles lies SoftBanks desire to undo the
mistakes it has made in India over the past three years. Unlike other venture-
capital rivals such as Accel Partners and Tiger Global Management that have
backed local market leaders such as Flipkart and Ola, SoftBank has failed to
pick any category winners in Indias booming consumer Internet economy.

A sale of Snapdeal to Flipkart, along with an infusion of funds in the buyer,

and a sizable investment in Indias largest digital payments start-up Paytmin
which SoftBank is currently in talks to invest up to $1.5 billion for a significant
stakewould go a long way in negating some of the mistakes that the
Japanese firm has made in India.

For SoftBank, the worlds biggest investor in start-ups, an investment in

Paytm means an entry into Indias big financial services market. The proposed
deal with Paytm is another instance of SoftBank trying to get it right the
second time. SoftBank initially considered investing in Paytm in late 2014 but
passed on the opportunity. It instead bet on online marketplace Snapdeal. At
that time, Paytm was rapidly expanding its nascent commerce business, which
SoftBank was opposed to because of its Snapdeal investment.

Another of its portfolio companies, Grofers, is in initial talks with larger

hyperlocal groceries delivery rival BigBasket for a potential merger.

SoftBank is eager to sell Snapdeal to Flipkart even in a cut-price all-stock deal

and then invest more cash in the buyer, according to three people aware of the
discussions. That may well be the best deal on offer, with Snapdeal being
valued at around $1 billion, they added. However, a buyout of by Flipkart may
yield more immediate benefits to Tiger Global Management, Flipkarts largest
investor, than to the buyer or to Indian consumers.

The buyout is being arranged by Tiger Global managing director Lee Fixel and
SoftBank, respectively. The deal may see SoftBank buy some of Tigers
holdings in Flipkart and put additional cash into the company, said the people
mentioned above.

According to these people, if the sale of Snapdeal to Flipkart goes through,

SoftBank may invest anywhere between $500 million and $1 billion in
Flipkart.

The proposed deal seems like a desperate attempt at financial engineering by

the countrys two most influential start-up investors, which have seen their
bets falter to differing degrees over the past 15 months (SoftBanks a lot more
so than Tigers).

Whatever be the outcome of the current round of talks with Snapdeal, one
thing is clearin the ruthless world of Indian e-commerce, there is no prize
for a distant second player. More so in the case of Snapdeal, which has now
slipped to fourth position after being overtaken by Flipkart-owned Myntra in
terms of monthly salesa far cry from the days when its proud founders
dreamt of toppling Flipkart.
https://factordaily.com/snapdeal-flipkart-merger-kunal-bahl-rohit-bansal/

https://drive.google.com/drive/u/1/folders/0B5-VcyFUfCNaVXFEUjFJRXkxWDA