India’s Flipkart is raising big VC money—but it may need even more to fend off Amazon

October 9, 2013
October 9, 2013

Flipkart, the e-commerce firm frequently touted as India’s answer to Amazon, must have one heck of a sales pitch: The company just pulled in an additional $160 million from Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina and Vulcan Capital. Only a few months ago it scored $200 million from existing investors Tiger Global, Accel Partners, Iconiq Capital, and Naspers Group in a deal that valued the firm at $1.5 billion; there’s no word yet how much the new deal will boost that number.

The new funds represent the sixth round of VC funding for Flipkart since it was founded in 2007—it raised $1 million in 2009, $10 million in 2010, $20 million in 2011 and $150 million in 2012. In light of its current loss-making operations, the need for constant injections of cash reflects Flipkart’s capital-intensive business model and lofty ambitions. At the time of the July funding round, an analyst told Mint that “the money would last a year or two and that the company would need more.”

It will also need the cash to fend off aggressive competition from the likes of eBay and Amazon, which are both expanding their own operations in India. Much is made of the comparisons between Amazon and Flipkart, whose founders used to work in Amazon’s Indian back-office operations. Like Flipkart, Amazon posted many years of losses before becoming profitable, in part because it invested heavily in infrastructure and distribution while focusing obsessively on a low-margin strategy.

As Quartz has reported, Flipkart switched from an online retail to a marketplace model earlier this year so that suppliers and merchants would bear the cost of inventory and storage. Both Amazon and eBay also follow the marketplace model in India in order to comply with regulations that ban foreign investment in online retail. The marketplace model has also worked out brilliantly for Chinese e-commerce giant Alibaba, which like Flipkart is partially owned by South African media company Naspers.

Alibaba is tantalizing investors and stock exchanges alike with the prospect of its forthcoming initial public offering. Flipkart’s prodigious rounds of fundraising and its unproven prospects suggest that a similar exit for its many early investors is still a few years away.

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