Japan’s SoftBank Group made an undisclosed investment in India’s online retailer Flipkart through its $100 billion technology-focused fund Vision Fund in a bid to take on Amazon.
The investment is expected to help Flipkart build its war chest in the battle against Amazon, the world's largest online retailer, which is rapidly gaining share in India’s online retail market.
“India is a land of vast opportunity. We want to support innovative companies that are clear winners in India because they are best positioned to leverage technology and help people lead better lives,” said Masayoshi Son, Founder and chief executive of SoftBank Group Corp., in a statement.
Bengaluru-based Flipkart said that the investment was a mix of primary and secondary capital and will make the Vision Fund one of the largest shareholders in Flipkart.The firm said that the money will help it to accelerate investment in driving continued market leadership.
This investment gives Flipkart lot of head room, freedom to make long-term investments in distribution, technology and marketing, said Arvind Singhal, chairman of retail consultancy firm Technopak. “It makes them very secure to compete better with Amazon,” said Mr. Singhal.
Despite some hiccups in 2016, India remains the fastest-growing online market in the world, according to Forrester Research. Online retail sales in India will reach $64 billion by 2021, growing at a five-year compound annual growth rate of 31.2%, the U.S.-based firm said in June.
SoftBank and Saudi Arabia’s sovereign wealth fund formed the SoftBank Vision Fund, the world’s largest technology fund, in May to invest in cutting edge technologies from autonomous driving to Internet of Things and virtual reality.
“We’re excited to welcome the Vision Fund as a long-term partner as we continue to build our business with a focus on serving the needs of all Indians,” said Flipkart co-founders Binny Bansal and Sachin Bansal (not brothers), in a statement.
In December last year, Flipkart co-founder Sachin Bansal, and Ola Cabs co-founder Bhavish Aggarwal, called for policies that protect domestic companies against their global competitors Amazon and Uber. They alleged that these firms were “dumping capital” to win customers.
The investment is part of the previously announced financing round, where Flipkart had raised capital from Chinese Internet company Tencent, U.S.-based e-commerce firm eBay and software maker Microsoft. After this financing round, Flipkart will have in excess of $4 billion of cash on balance sheet.
The funding deal is expected to give Flipkart leverage against arch rival Amazon. Founded by billionaire Jeff Bezos, Amazon has pledged to invest $5 billion in India in the next few years.
“This is a landmark deal and firmly establishes Flipkart's leadership position in e-commerce. Securing Masa-san's ( Masayoshi Son ) Vision Fund as a long term investor is a huge win for Flipkart,” said Nasscom executive council member Ravi Gururaj. He said that Flipkart aspires to solidify its position as India's leading e-commerce site. “These new funds will help it grow more broadly across India and effectively fend off competitors in the metros too,” said Mr.Gururaj, a serial entrepreneur.
Sandy Shen, Research Director at Gartner said the investment in Flipkart will accelerate the growth of the e-commerce industry in India as the top player will have more ammunition and can thus turn on the growth and acquisition engine, pushing the competition to up the ante. “Those that cannot cope with the intensified competition will quickly lose out. This will help in consolidation of the market, resulting in a few big players,” said Ms.Shen, in a statement. Ms.Shen also said that the investment brings the much-needed capital to Flipkart, enabling it to grow the business into more geographic and product markets, as well as acquiring companies that will complement its business.
Flipkart said India has a thriving Internet market with close to 500 million internet users and as per market research, the Indian e-commerce market is expected to grow at a five-year CAGR in excess of 30 percent.
The investment comes at a time when Flipkart's New Delhi-based rival Snapdeal declined to be acquired by the company after about five months of negotiations. People with direct knowledge of the negotiations between the investors of the two companies said that Snapdeal's top investor SoftBank was building pressure on Flipkart to buy Snapdeal. An industry expert said that Snapdeal seems to have made their decision on pivoting into a new model and may not be a part of this deal. “I hope they (Flipkart) don't now look to acquire Snapdeal again, as it is messy and you need to provide returns to the investors,” said an industry expert who did not wish to be quoted.
