India’s newest startup unicorn says it is more IPO-ready than competitors

“It was not easy to raise funds this time.”
“It was not easy to raise funds this time.”
Image: ShopClues
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Earlier this week, Delhi-based e-commerce startup ShopClues entered the unicorn club—private companies with a valuation of over $1 billion. But the company’s co-founder and CEO Sanjay Sethi believes this does not change anything for them.

ShopClues is now focused on turning profitable by next year, and lining up an initial public offering (IPO) in 2017. The company is targeting a gross merchandise value—or the total value of goods sold in a marketplace—of $1.2 billion by March 2016, compared to $750 million in December 2015.

Founded in 2011 by former Wall Street analyst Sandeep Aggarwal, who resigned from the company in 2013 following insider trading charges, ShopClues believes it is different from Flipkart, Snapdeal, and Amazon. That’s because it targets lower income households and operates on a model focused on lower price points. The average selling price on ShopClues is between Rs800 and Rs900 while it is in the range of Rs 3,000 for other players, it says.

ShopClues’s Sethi spoke to Quartz about the pressure to turn profitable, challenges ahead of an IPO, and how Indian e-commerce players may find it hard to raise funds from venture capital (VC) firms going forward. Edited excerpts:

Does becoming a unicorn change anything for ShopClues?

Being a unicorn does not means anything to us. This is a title that the media uses. For us, it is just a number.

How far is ShopClues from profitability?

We are targeting profitability in a matter of months now. It will happen as we increase our scale, and the recent funding will help us do that. We will turn net cash flow positive by the end of this year or by early 2017. For an IPO, we need to get to a point where we are profitable or just a few months away from profitability.

Are you planning to launch an IPO in India, or in the US?

It is difficult to answer this right now. We are hoping to do an IPO in about 18 months from now. So we are talking to people and educating ourselves. Our company is registered in Delaware in the US, so ideally it is easier for us to do a NASDAQ-listing. But there are many factors that will influence the decision, including how tech stocks are doing on NASDAQ at that time.

Most other Indian e-commerce firms are not openly talking about an IPO right now. Why did you stick your neck out?

I think we are more ready for an IPO than many other companies in the sector. There are a lot of things you need to be IPO-ready. For example, you need an operating history, a company structure, audit reports for past years, and a clear path to profitability—we have all those things. It is a risk. I have no certainty about the future. But it is a calculated and measured risk.

What are your three biggest challenges ahead of the IPO?

The biggest challenge for us is to stay focused. The organisation is large now with over 1,000 employees, and there are too many distractions like what others are doing, how much money they are raising, etc. I am not so concerned on the business front because that has been operating and growing for several years now, and our model is fairly well established.

Another challenge would be to integrate the acquisitions that we make. Almost 90% of acquisitions fail to deliver the results that you expect. So we want to make sure they are successful.

Is there any pressure on ShopClues to turn profitable?

The pressure to turn profitable has always been there and I feel it should be like that. We have raised very little money overall, and the only way you can run a business despite raising such small capital is that you have to turn profitable and you must burn less money.

Profitability is a big question for everyone right now. It was not easy to raise funds this time. You can get money but getting it at the right value is tough because the sentiment of the Indian e-commerce is slightly negative right now. Large companies that have already reached a certain scale are not making profits and don’t have a clear path to profitability, which is leading to some scepticism in the market.

Does this mean it will become hard for Indian e-commerce players to raise funds?

The larger companies that have reached a certain leadership may find it a little difficult but not impossible. When you reach a certain scale—unless you are grossly mismanaged—you will not disappear. But the terms of raising capital will not be conducive.

Frankly, if I was getting a bank loan at 10-11%, I would have jumped to take that. VC money is the most expensive capital, and banks don’t underwrite PowerPoint presentations. They need assets, so you need to go to a VC.

What are the areas you are looking at for acquisitions, and how soon could these happen?

Payments is an area that we have been scouting acquisitions in for a long time. We are also actively looking for opportunities in analytics and mobile technologies. We should make at least one announcement in the next 45 to 60 days. The funds we have raised now allow us to spend single-digit millions on acquisitions. We could stretch that to early double-digits, but for an acquisition bigger than that, we will have to raise more funds.

The general view about the e-commerce space is that a single player will eventually win. Do you think you will be the winner?

This is a big myth. In fact, it is a typical case of how if you keep saying one thing over and over, it becomes the truth and people start accepting it as a fact. If you observe across other countries, none of them has a single winner. Amazon has just about 16% marketshare in the US and there are other players like Walmart, eBay, Overstock, etc.—they are all doing well. Even in China, multiple multi-billion dollar players have existed over the years.

Given India’s dynamics, there will be multiple players that will take their positions as per their unique selling propositions. How do you imagine that one single player will take care of every consumer and every merchant in the country? It is impossible.