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Flipkart Seeking Investment Banking Help To Raise Fresh Funds

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  • BHC Team

India seems to an active battleground for startups both domestic and international. With the on-going battle between Ola and Uber, another high profile competition is taking place between Flipkart and Amazon. Amidst the growing cash infusion by Amazon India's parent company, Flipkart finds itself in need of fresh funds to maintain competitiveness. The problem with this is a growing downturn in investor sentiment, with companies being actively devalued. As a result, Flipkart has now turned to investment bankers, including Goldman Sachs to help find these fresh funds.

Over its last four funding rounds, Flipkart, India's most valuable Internet Company raised a cumulative $2.6 Billion with relative ease due its uncontested status as India's largest e-commerce firm. However, with Amazon India's intense cash burn in the market, Flipkart has now turned to a number of investment banks to seek funding options. For its next round, Flipkart's preferred valuation is around $15 billion, however, venture capital investors say that Flipkart will struggle to get that valuation because of Amazon's continued expansion and the belief in investor circles that Flipkart is overvalued.

Along with recently acquired companies such as Myntra and Jabong, Flipkart has a monthly cash burn rate of approximately $40 million per month, giving them just enough in their coffers to last another two years (higher estimate). As its cash piles disappear, the promoters, along with major investors Tiger Global Management are seeking an immediate influx of cash. It seems logical to state that the longer they wait, and the more depleted their cash reserves get, the lower their valuations will get i.e. if Flipkart isn't able to produce some level of profitability.

Investment banks in India lost out on a large amount of business in 2014-15, by missing out on the large fund raising exercises by Indian internet companies, and therefore will pounce at the option to raise funds for them now, albeit at a lower valuation. In the past, investors were so excited by the opportunity of a big-win in the Indian Internet space, that they invested directly, with no bankers required.

A recent report in Mint stated that the company planned on raising between $500 million to $1 Billion in fresh funds before the end of the fiscal year. While the company has been making commendable progress in improving their operating profits under the new stewardship of CEO Binny Bansal and Kalyan Krishnamurthy, some of their own investors marked down their valuation by as much as 40%.

The devaluation has come amidst widespread criticism of the use of Gross Merchandise Value (GMV) to incorrectly over-value companies. Moreover, their three-prong approach involving app-only push, high profile leadership along with their marketplace model having failed saw a mass exodus of personnel from the company. As such, these slips and faults allowed Amazon India to catch up to their Indian rivals, leaving Flipkart in more urgent need of money than most care to realize.