A couple of years ago, venture capitalists began aggressively funding e-commerce sites in Bangalore, largely inspired by the success of Flipkart, the e-commerce Indian company that’s raking in rupees by delivering goods to villages and far-flung towns. Just today, the company revealed that it has raised $160 million in fresh capital, atop a $200 million capital injection it closed in July. (The six-year old has now raised $540 million altogether, according to Crunchbase.)
Unfortunately, e-commerce riches have been hard to come by. While Flipkart has pulled ever further ahead, racking up 10 million registered users and over a million daily unique visitors, roughly 40 other venture-funded e-commerce startups have since bit the dust.
Insiders say there’s a light at the end of the tunnel for a small number of companies that have benefited from government efforts to keep U.S. companies out. The question is, how long can these sanctions last?
According to Subu S.V., a managing director with BVP India in Bangalore, the absence of a strong retail — and physical — infrastructure has significantly hampered the growth of Indian e-commerce. While in the U.S., the online shopping revolution followed the rise of the giant shopping mall, in India, “offline never really happened,” he notes. “It’s still mom and pop stores ruling the country. So offline and online are happening simultaneously, and while the market size is huge, there are many bottlenecks” to overcome, he says.
Nandu Madhava, a Harvard MBA and Texan who is CEO of mDhil.com, a WebMD for India based in Bangalore, lays the blame for so many busted e-commerce companies on a faulty investment premise.
Pointing to India’s fast-growing base of 165 million Internet users, Madhava observes, “Give a man or woman access to the Internet for the first time in their life, and their natural inclination isn’t to go buy a pair of shoes, a polo shirt, or fancy watch. It’s likely to go: porn, cricket, Facebook, politics, jobs, health, YouTube, news, pirated media. Unfortunately, most Indian VCs had never run a business, much less an online business. Most were former bankers or consultants from MBA schools trying to lift US models and place them into India.”
Still, some companies will make it, say both men. Madhava points to startups in the mobile, consumer Internet, online video, Saas and payment transaction industries that are “incredible” but “need patient capital ready to take a 24- to 36-month view of the Indian opportunity.”
As examples, S.V. points to the lifestyle goods e-tailer Jabong.com, which is gaining traction, and to the fast-growing e-commerce site SnapDeal, backed by Bessemer, which attracted a $50 million investment from eBay earlier this year. The 1,000-employee company is a marketplace for more than 10,000 small merchants and more than 20 million registered users.
S.V. says that complicated and onerous government regulations have enabled Jabong and SnapDeal and FlipKart to get a jump on global giants like Amazon, which launched operations in India in June. For now, at least, Amazon and other foreign companies may host marketplaces that brings buyers and sellers together, but they can’t maintain inventory to sell directly to shoppers.
Nevertheless, those rules may change, particularly after India’s general election next year. In fact, S.V. tells me the “general expectation is that [things] are going to change in another six to 12 months.” In the meantime, he says, the country’s most successful “home-grown companies are getting a four- to six-year head start.”
It will be “interesting to see what happens,” he adds.
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