E-commerce trumps realty in investments In the past 10 months, investors have put in $8.5 billion in 381 deals; e-commerce accounts for 35% of them

E-commerce trumps realty in investments The money has been spread across 55 deals, even though a disproportionate amount has been invested in three firms—online retailers Flipkart and Snapdeal, and taxi services firm Ola.

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The money has been spread across 55 deals, even though a disproportionate amount has been invested in three firms—online retailers Flipkart and Snapdeal, and taxi services firm Ola.

Mumbai: Technology and e-commerce firms have overtaken traditional sectors like real estate, financial services and infrastructure in terms of rasing capital, this year.

In the past 10 months, investors have put in $8.5 billion across 381 deals in the country and e-commerce has contributed 35% of the total deal value at $2.96 billion, according to data available with consulting firm EY.

The money has been spread across 55 deals, even though a disproportionate amount has been invested in three firms—online retailers Flipkart and Snapdeal, and taxi services firm Ola. Real estate has been the second most active sector, raising $1.2 billion from private equity (PE) investors.

“E-commerce has seen more PE interest this year then any other sector, and not only from venture funds, but also from sovereign funds and some traditional growth private equity funds, as they see significant opportunity for e-commerce sector in India, particularly relative to the growth experienced in markets like China,” said Sanjeev Krishan, partner and leader, private equity and transaction services, at PricewaterhouseCoopers Pvt. Ltd, another consultancy.

Accel Partners, Blume Ventures and Sequoia Capital lead the table in terms of the maximum number of deals closed by them in the last 10 months, though in terms of capital allocation, investors like Warburg Pincus, Temasek Holdings Pvt. Ltd lead the charts.

Sequoia Capital declined to comment. Accel Partners did not reply to an e-mail sent on Monday.

“We continue to believe in private-label commerce, enablers like payments and logistics, unique marketplaces and even offline brands. That’s where the bulk of the volume of our investments are. It is likely to continue into 2015. The larger players will compete for market share and leadership and share of consumer wallet, and that means more capital towards marketing, customer satisfaction and infrastructure,” Karthik Reddy, managing partner with Blume Ventures, said.

Apart from these funds, Tiger Global Management Llc has also been among the more active investors this year. In an e-mail response, Tiger Global said it does not talk about its investment strategy with the media.

Interestingly, of the nearly $3 billion investment in e-commerce firms, 80% ($2.3 billion) has been invested in three firms—Flipkart, Snapdeal and Ola. All three have seen repeated rounds of capital-raising this year.

Flipkart has raised $1.2 billion from GIC, Tiger Global, Naspers, DST Global, Iconiq Capital and others this year.

Since 2009, the company has raised $1.7 billion through nine rounds of funding.

Snapdeal has raised $884 million in three rounds of financing this year. It counts Ratan Tata, chairman emiretus of Tata Sons Ltd, as one of its investors, apart from SoftBank Corp., BlackRock Inc., Tybourne Capital Management, Temasek Holdings, Premji Invest, Myriad Asset Management, IndoUS Venture Partners, Bessemer Venture Partners, Nexus Venture Partners, eBay Inc., Intel Capital and Saama Capital. The online supermarket has raised six rounds of capital since 2011.

Flipkart declined to comment. Snapdeal did not respond to an email sent on Monday.

Ola has raised $252 million from SoftBank, Tiger Global, Steadview Capital, Matrix India, and Sequoia Capital. Since 2013, it has concluded four rounds of fundraising.

“We are growing aggressively across cities and categories. This market needs considerable investment in terms of building the ecosystem as personal transportation is almost non-existent in most cities in India even now,” said Bhavish Aggarwal, the co-founder and chief executive officer of Ola, adding that they are not looking for more funding immediately.

Multiple round of funding for these firms have come with steadily rising valuations, say experts. “There have been a few transactions where valuations were stretched other than that all transactions have happened at par with global peers. Brazil and Russia are far more ahead in the curve than India when it comes to e-commerce space,” said Nitin Agrawal, director at Equirus Capital Pvt Ltd, an investment bank.

Valuations have risen because of an expectation that Internet commerce is set to take off in India, say fund managers. According to a November report by brokerage Motilal Oswal Financial Services Ltd, online sales account for just 0.3% of the $600 billion retail market in India.

“Some over-valuation seems prevalent, but once again, the bet is that India is on the cusp of the consumer Internet take-off and if it does get there in the next 5-7 years, these valuations will seem very very reasonable,” said Reddy.

“One has to understand that all Internet valuations are calculated from exit potential or growth potential in the next 2-3 years.”