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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.
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
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.
IN NON-E-COMM FIRMS
Xiaomi invested $25 million in ad-tech
venture Hungama Digital
Bertelsmann India invested $32 million
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