'If you build it they will come': eBay leads $134m investment round in India's Snapdeal

While the cash infusion must be welcome for the company as it battles arch-rival Flipkart, many wonder whether India's e-commerce valuations are justified.

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 $133.7 million into e-commerce outfit Snapdeal, making investments in the company total $235 million to date.

E-commerce company Snapdeal just received an infusion of $134 million.

The website sells the usual list of stuff that e-commerce players hawk, from electronics to apparel. eBay had originally led an investment worth $50 million in Snapdeal last year. According to industry insiders, this makes the website worth anywhere from $750 million to $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 $3.1 billion today, and will blossom to $22 billion in five years, according to a report by CLSA. That is still anemic compared to China's market, which clocked an estimated $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 has yet to happen.

That hasn't, however, deterred investors from identifying potential winners and ploughing money into them so that 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 $50 million and $360 million in the last year alone, according to reports.

The big daddy of them all is Flipkart, which has raised an astounding $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 to 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.