Online retailer Snapdeal is close to sealing a deal to raise $80-100 million (Rs 440-550 crore), in the process potentially snagging private equity investor General Atlantic Partners which was once in funding negotiations with rival Flipkart.
Snapdeal’s existing investors Bessemer Venture Partners, Nexus Venture Partners and IndoUS Venture Partners will also participate in this round of investment, a person directly involved in the negotiations said without divulging details about how much stake is being sold.
General Atlantic did not reply to questions sent by email. Kunal Bahl, founder and chief executive officer of Snapdeal, declined to comment.
The transaction, when it is complete, will possibly see Snapdeal pull ahead of Flipkart in terms of the total amount of private equity capital raised.
In July 2011, it raised $40 million from Bessemer, along with existing investors Nexus and IndoUS, at a valuation of around Rs 1,000 crore. This followed an investment of $12 million by Nexus and IndoUS in January the same year.
The deal will also mark General Atlantic’s first investment in an Indian ecommerce venture. Last year, talks between the fund and Flipkart failed due to differences over valuation.
Snapdeal model resembles that of eBay in that it connects retailers from across the country with consumers. The online retailer does not hold any inventory and it is the retailer who handles packaging and deliveries through Snapdeal-accredited courier companies.
Flipkart, on the other hand, has chosen the Amazon model of holding inventory. Flipkart also handles its own logistics, including product delivery to customers, employing around 4,800 staff, many of whom are posted at its logistics arm. In comparison, Snapdeal employs around 1,500 staff.
Flipkart, which is based in Bangalore, has formally announced receiving private equity capital of $31 million but has offered no official confirmation of the additional funding from its existing investors Tiger Global and Accel Partners in early 2012.
Three independent industry professionals have told ET that the fund-raising was in the range of $75-100 million at a valuation of $500-600 million.
For General Atlantic, which has invested over $1 billion in Indian companies, including Genpact, the current negotiations with Snapdeal coincide with a sharp dip in valuations of ecommerce companies.
Few online retailers have registered consistent profits and most are spending $1-3 million every month on marketing, overheads and salaries in pursuit of growth.
“Last year, entrepreneurs dictated valuations, but now it is investors who are calling the shots,” said Deepak Srinath, director at Viedea Capital Advisors.
Valuations have plummeted to 1-2 times revenue from a high of 4-10 times, according to bankers with knowledge of deals in the sector. By this token, Snapdeal, which is targeting revenue of Rs 600 crore in fiscal 2013, will have a value of around Rs 1,200 crore.
Bahl, along with Rohit Bansal, founded Snapdeal in 2010 as a group buying site featuring heavily discounted deals on local services. However in 2011 the company changed its focus to products as consumers shifted from daily deals to actual online retail.