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Why has Facebook invested in a four-year-old Indian startup?

Nearly a decade after it launched operations in India and five years after its maiden acquisition here, Facebook has for the first time turned investor for a young startup in the country.

On June 13, the Menlo Park, California-based social media giant said it has invested an undisclosed amount in exchange for a minority stake in Meesho, a social commerce app that connects small sellers with customers on platforms such as WhatsApp, Facebook, and Instagram. It also provides them sourcing, logistics, and payment tools.

Facebook did not disclose the amount it had invested in Meesho. An unidentified source told news portal TechCrunch that it was a “very significant” amount. Last year, Meesho was valued at just around $250 million.

The move is Facebook’s investment for the future, experts say.

“Social commerce has been a massive head in countries like China and South Korea,” said Anindya Ghose, the Heinz Riehl professor of business at New York University’s Stern School, told Quartz. “So it makes sense to explore similar unique solutions for the Indian market which Meesho is doing.”

Also, at a time when Facebook, like other social media majors, is facing the heat from the Indian government over data privacy and governance, engaging with the startup community could be a good branding exercise.

“This kind of investment isn’t a strategic one which can impact its balance sheet immediately but a minor one to build a positive image,” said Arvind K Singhal, chairman of retail consultancy firm Technopak Advisors. “An investment in a startup like this could (also) be seen as the company’s attempt to change the perception that it is too big. It shows that Facebook is inclusive.”

Why Meesho?

Meesho, short for meri shop (“my shop” in Hindi), was founded in 2015 by Vidit Aatrey and Sanjeev Barnwal, who were batchmates at the Indian Institute of Technology, Delhi, from 2008 to 2012.

The Bengaluru-based company has so far raised over $65 million, including a $50 million series C funding round just about seven months ago. Meesho was also incubated at one of US’s top startup accelerator, Y Combinator, in 2016. It has over 2 million resellers.

“We share a common goal with Facebook—to enable community and help small businesses grow. This commitment from Facebook will help us leapfrog towards our goal,” co-founder and CEO Aatrey said in a statement on the company’s website. A Meesho spokesperson refused to respond to specific queries from Quartz.

Meesho’s unique selling proposition is that it focuses on housewives and students. That also appears to be one of the reasons Facebook was drawn to the startup “We love that the company is translating the power of online communities to expand economic opportunity for all of India, and especially women,” Ajit Mohan, vice-president and managing director of Facebook India, said in a statement.

And this could prove to be a big positive in the long run. “Given that 70% of India’s online users are male, growth will come from women users,” Ghose added.

Besides, Meesho is counted among the largest players in India’s social commerce space, which has massive potential.

The e-commerce gold rush

Over the past decade, the Indian e-commerce sector has expanded massively with homegrown behemoths such as Flipkart, Snapdeal, and Paytm Mall attracting billions of dollars in investments. America’s largest e-tailer, Amazon, also plowed serious money into the country.

Yet, estimates say there are only about 50 million regular online shoppers in the country even now.

In the meantime, the number of social media users has exploded. Facebook, for instance, has over 250 million users in India, higher than in any other country. Indians also constitute WhatsApp’s largest user base, at over 200 million of its total 1.5 billion.

So, it makes business sense for retailers to tap into this segment for growth. Already, nearly 80% of the merchants in India use platforms like Instagram, Facebook, and WhatsApp to reach consumers, according to a 2018 report by US-based online payment processor Paypal.

In January 2018, Facebook launched its Marketplace feature in India, which lets users to buy and sell items available in the neighbourhood. “Given that Meesho is also operating in the same space it makes sense to look for a synergistic relationship,” Ghose said. Its Meesho move is almost in line with those of other American internet players in India, he added.

In December 2017, internet search giant Google made its first direct investment in India when it backed hyperlocal concierge app, Dunzo. The investment was expected to encourage the local firm to use its platform and expand its service. Lately, there have been rumours that microblogging website Twitter may pick up a minority stake in local language social networking platform ShareChat.