The e-commerce space in India just got a little hotter. eBay, along with existing investors (Kalaari Capital, Nexus Venture Partners, Bessemer Venture Partners, Intel Capital and Saama Capital), plonked another US$133.7 million into e-commerce outfit Snapdeal, making investments in the company total US$235 million to date.
The website sells the usual list of stuff that e-commerce players hawk, from electronics to apparel. eBay had originally led an investment worth US$50 million in Snapdeal last year. According to industry insiders, this makes the website worth anywhere from US$750 million to US$1 billion.
On one hand, the market potential in India is huge if it goes the China way so backing a frontrunner makes sense. Estimates suggest that the market is worth US$3.1 billion today and will blossom to US$22 billion in five years, according to a report by CLSA. That is still anemic compared to China's market, which clocked an estimated US$250 billion in sales last year, and where just one day's sales in the country is often equivalent to India's total e-commerce revenues for the year.
Industry hands think that these India e-commerce investment figures are somewhat preposterous and that we still have a ways to go before those valuations can be justified. Internet connections have to increase dramatically, roads and transportation have to improve, the economy has to generate enough jobs so that people can earn and spend on online goodies and the power sector has to improve along with livelihoods. Much of that is yet to happen.
That hasn't however deterred investors from identifying potential winners and ploughing money into them so they grow as quickly as possible, market size concerns be damned. 'If you build it they will come' seems to be the thinking. Consequently, leading sites such as Flipkart, Myntra and Jabong, have all seen investments between US$50 million and US$360 million in the last year alone according to reports.
The big daddy of them all is Flipkart, which has raised an astounding US$541 million from five rounds of funding. This makes the site Snapdeal's biggest threat along with Amazon India. All three have marketplace models. Medianama says that as of June 2013, Snapdeal claims to have attracted more than 20 million registered users while clocking 14-15 million monthly active users on its site. Website techcrunch estimates Snapdeal's gross merchandise value ballooning at 400 percent year over year, with an expected $400 million in sales this year.
These aren’t bad stats but a few miracles need to happen before these sky-high valuations look like they make sense.