2E-Commerce VC investment summary53 E-Commerce companies have raised ~ USD 853 Mn in Venture Capital over the past 3 years**Excluding Seed and Angel funding and un-reported deals until May 2013**Jabong and other Rocket Internet backed firms are not included in this report asinvestment data has not been disclosedHorizontalUSD 458 MnTotal InvestmentUSD 853 MnOthersUSD 164 MnApparelUSD 231 MnUSD 191 Mnacross 53 firmsUSD 245 Mn- 11 firms53 firms raisedUSD 191 MnSeries A11 firmsraisedUSD 245 MnSeries BSeries C,D10 firmsraised417 Mn• 11 Horizontal e-retailers (multi category) have garnered ~USD 458 Mn (overhalf the amount invested in the sector)• 20 Apparel & Accessories firms have been funded to the tune of USD 231 Mn• 5 Baby Products focused firms have raised USD 41 Mn cumulatively• Daily deals portals raised USD 25 Mn ; however, most of them have pivoted,shut down or merged with horizontal e-retailers• 14 other niche category players have raised about USD 98 Mn• Of the 53 firms who raised Series A, only 11 companies have managed toraise further rounds **
3E-Commerce PE/VC investments by categorySchool Products Home Décor Jewellery Health & Beauty Groceries Miscellaneous Daily Deals Baby & Kids wear Apparel -‐ Private Label Apparel & Accessories Horizontal NumberofInvestmentsQuantumofInvestmentsinUSDMn11173535222214581894241252312243081
4E-Commerce exposure of VC funds• 49 Venture Funds and Institutional Investors haveinvested in 53 ecommerce companies over variousrounds• 11 investors have invested in 3 or morecompanies, with estimated exposure of $40 - $50Mn per fund• 18 investors have more than 1 E-Commerceinvestment112222333444666810ebayUnilazerMatrixNokiaQualcommNaspersSequoiaLightspeedIntelSAIFNVPNexusKalaariIDGHelionTiger GlobalAccelMore funds
52011-12 – Pivoting to surviveContinuingOriginal Model- 75%Niche, 4Home Appliancesand Electronics, 4Apparel - Niche,3Daily Deals, 2Pivots - 25%Horizontal8 CompaniesApparel &Accessories5 CompaniesPivots into75% Venture funded ecommerce companies in India are continuing with their original model. However, anecdotallythe ones who pivoted seem to be doing much better.Companies have pivoted mainly:• To offer more choices and a bigger basket to the current user base• To increase the ARPU & Lifetime value of an acquired customer• To add segments which (a) Are complimentary (b) Offer better margins (c) Make strategic sense
6E-Commerce investment activity in 2013 (Jan-May): Incumbent Investorsputting more money into select portfolio firms• 9 follow on investments in 2013 (Jan-May) with acumulative value of USD 155 Mn• Key deals:– Nexus and Bessemer, along with new investors eBay andRecruit Co s invested USD 30-50 Mn in Snapdeal– Helion s follow on investment of USD 12 Mn in the Babyoye &Hoopos merged entity– SAIF Partners follow-on investment of USD 10 Mn in the Zovi &Inkfruit.com merged entity– Tiger Global’s follow-on round of USD 15 Mn in Caratlane– Intel Capital and Sequoia Capital s investment of USD 14 MnSeries B in Healthkart– Norwest Venture Partners investment of USD 8 Mn Series B inPepperfry– Unilazer & IDG s investment of USD 10 Mn Series B in Valyoo(Lenskart)• There were no fresh Series A investments in thisperiod• There is a rising trend of investment into mergedentities, which will drive more such similar mergers inthe sectorInvestor Company
7E-Commerce M&A Activity• In CY2012 the key M&A deals were horizontal E-Commerce players acquiring category firms• In 2013 the emerging trend is Tier-2 players merging and raising funds to compete effectively against leaders• M&A activity in the sector has largely been investor driven, especially when firms have the same investors• Majority of these M&A s are cashless stock deals and similar deals are expected in the short term2473CY 2010CY 2011CY 2012CY 2013Target Acquirer
8Evolving E-Commerce market structureInventory led Managed MarketplaceVendor ledMarketplaceOffline Brands• Indian E-Commerce market is at a similar stage to China 5 years ago• Horizontal players are adding third party sellers (marketplace) for certain categories to capture the long tail ofvendors and reduce inventory holding costs, similar to Amazon s blended model• Flipkart & Jabong have added third party sellers on their platform. We expect horizontal players togenerate a significant share of their business from marketplace models in the future• Inventory costs, reconciliation & returns make inventory led retailing a difficult proposition• Generating demand for products and connecting sellers directly to buyers is less expensive; however,marketplaces need to address trust issues and control the buying experience & fulfillment process• Offline brands tapping the online market will be a significant growth driver
9E-Commerce industry evolution in China• Marketplaces dominate the China market, with companies like Taobao (Alibaba Group), PaiPai (Tencent Group).Large B2C players are Tmall.com,360buy.com, Suning.com and Amazon.cn• Ecommerce buyers have increased from ~40 Mn in 2007 to more than 242 Mn now, which is 75 Mn more than US,6x the number in UK, more than 2x of Japan• China E-Commerce market is expected to surpass the US market this year with size of USD 265 Bn and surpass US,UK, France and Germany combined by 2020 reaching USD 650 Bn in size• Key drivers for growth are the burgeoning middle class and increase in internet penetration from 16% in 2007 to~42% currentlyChina E-Commerce market projections in USD BnData Source : China E-Commerce research from MGI and Li&Fung7 17 33 64 102 142 185 224 2552 51125 4779120170-100200300400500CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 CY 2015Marketplace Inventory led
100.2 0.6 126.96.36.199.188.8.131.52.5-2.04.06.08.010.012.014.0CY 2012 CY 2013 CY 2014 CY 2015 CY 2016Marketplace Inventory ledE-Commerce industry evolution in India• By 2016 we expect the Indian E-Commerce market to touch USD 13 Bn, with significant contribution fromMarketplaces and Offline brands• Market-place models will level the playing field by allowing the long tail of suppliers/ manufacturers from Tier II/IIIcities to service national demand• There will be significant rise in offline brands tapping the online channel through own e-Commerce sites and onmarketplacesIndia E-Commerce market projections in USD BnData Source : Allegro Research and expert/industry estimates
11Short/Medium-term trends shaping the Indian e-commerce landscape• Demand centers will expand beyond Metro/ Tier I cities to Tier II/III cities and beyond• Offline brands & OEMs increasingly focusing on online channel• New categories like auto parts, pharma, groceries will developEmergence of newcategories andmarkets• Cost of customer acquisition continues to remain high and profitability remains elusive• E-Commerce players will move to outsourced logistics and fulfillment services, as self-logistics will remain unviable• Of the 53 VC funded companies, it is unlikely that more than 15 will survive asindependent entities by 2014Economics willremain challenging• Inventory holding costs will continue to put pressure on margins; horizontal players areadding third-party sellers on to the platform to transfer the inventory holding burden• We expect horizontal players to generate significant business from marketplace model inthe future• Local retailers/manufacturers will use market-places to tap into new demand channel• Pure play marketplaces need to work hard on controlling the buying & fulfillment experienceand address trust issues of first time online buyersEmergence ofmarketplace model
12Funding and Exit Outlook• Now that the land grab is over, Series B and follow on rounds will continue to be a challenge for most E-CommerceCompanies except category leaders and the big 3 or 4 horizontal players• Series A funding for e-commerce will be virtually non existent for the next 12 months; however, E-Commerceservices companies in logistics, payments, front-end technology, etc may see some investments• The FDI & regulatory overhang still continues; however, a marketplace is technically not ‘retailing’ as per law andthis seems to have prompted some of the ‘pivots’ to marketplace model• For cash strapped E-Commerce companies, venture debt is proving to be an option for bridge funding despitestringent loan terms. Snapdeal, Myntra, FirstCry, etc have raised debt from SVB• We expect to see a few more consolidation of portfolio companies in the next 6 months• Possibility of Flipkart or Homeshop18 doing an IPO in the next 12-18 months; but unlikely to be more than 2 or3 IPO’s in the space in the foreseeable future.• Listings likely to be outside India, since they cannot match the continuous profitability criteria for listing inIndia
13Contact InformationDeepak Srinath,Bangalore• email@example.com• Director, Digital Media PracticeAravind G.R,Bangalore• firstname.lastname@example.org• Digital Media PracticeSrikrishna Swaminathan,Bangalore• email@example.com• Digital Media Practice
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