Friday, 26 August 2016

Investors look beyond e-commerce

Once the darling of foreign investors, e-tailers have seen a slump in funding activity


With e-commerce businesses losing steam, investors are increasingly looking at opportunities in start-ups in areas other than online retailing. The fresh investments in instant messaging application Hike and buyout of digital advertising firm Media.net are just two of the many such instances of this trend.
According to several industry experts and investors, the sentiment is high for ventures in the fintech, data analytics, B2B commerce and artificial intelligence sectors.
About 44 per cent of investments this year has gone into the fintech space.

Past glory
In 2013-14 e-commerce was the hottest property, with the sector grabbing about 23 per cent of the total $5.2-billion funding in about 300 deals. Of all the funding that came into the e-commerce sector, about 95 per cent went to Flipkart and Snapdeal.
However, things have changed, and investors are pumping in smaller amounts in more number of companies. In 2015, funding further increased to $9 billion in about 1,005 deals, as per various industry reports. New sectors that emerged during this period were transportation, mobile-tech, ad-tech, fintech and food-tech.
Recent examples of non-e-commerce investments include Warburg Pincus investing $125 million in logistics start-up Stellar Value Chain, Creation Investment investing $25 million in fintech start-up Capital Float and Sequoia pumping in Rs. 100 crore in health-tech venture 1mg
Once the darling of foreign investors, e-commerce ventures (Flipkart, Snapdeal, Myntra, Zomato, among several others) have seen a slump in the funding activity in the last 12-18 months due to issues around poor revenue growth, high cash-burn, valuation game, and their inability to generate profits and create a sustainable business. This year also saw the highest number of e-commerce ventures downing their shutters (Peppertap, TinyOwl), which is also a major reason for investors looking away from such ventures and focusing on start-ups with innovative solutions.
As per a recent Tracxn data, about 50 start-ups will soon enter the Unicorn club ($1-billion valuation) in the next few months, and of this only 10 are e-commerce players with the rest being from sectors such as fintech, analytics, health-tech and logistics.
Apoorv Ranjan Sharma, co-founder and President, Venture Catalysts, is of the view that the e-commerce sector was over-funded.
He said that at least 14 established players in India are in either the consolidation or the restructuring phase.
“They are only few investments happening in e-commerce; only when there is a technology twist to it as there is a need of massive differentiators. Most of the players have weak revenue models.”

A mature market
Serial investor Sanjay Mehta said the e-commerce market is already maturing and hence there is little scope for investors to get an upside on these investments. Between 2005 and 2015, he said, the number of e-commerce venturesdoubled and just 2-3 companies attained their pole positions, thus leaving little scope for investors to look at those ventures.
Mehta said the trend of investing in non-e-commerce start-ups began mid last year. 2015 saw a record $4.8-billion investment by VC funds in India, including $2.9 billion in e-commerce and technology businesses; but this year is all about start-ups with strong revenue models and high returns.
Harish HV, Partner at tax and advisory firm Grant Thornton, is of the view that the whole investment process is cyclic and that investors will keep at innovative companies with differentiators. He said it is too early to say that e-commerce will not bounce back.

     RECENT INVESTMENTS IN NON-E-COMM FIRMS
  • Xiaomi invested $25 million in ad-tech venture Hungama Digital
  • Bertelsmann India invested $32 million in Lendingkart
  • Mobile wallet Mobikwik raised $50 million from Japanese and Taiwanese corporate firms
  • Ford invested $25 million in self-driving car-rental start-up ZoomCar
  • Online loan facilitator Rubique raised $3 million in series A round from Kalaari Capital
  • Automobile platform Droom received $29 million from Silicon Valley investors
  • Payment wallet TranServ raised about Rs. 100 crore from investors led by Micromax Informatics and IDFC Asset Management Co


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