Bangalore: India’s online retail boom is expected to boost e-commerce enablers such as logistics firms, advertising platforms and mobile payment technology companies, which are now being seen as safer and more affordable investment bets by venture capital firms.
For venture capital investors such as SAIF Partners, Seedfund and Peepul Capital, which either missed out on or avoided investing in e-commerce firms such as Flipkart India Pvt. Ltd and Snapdeal, these enablers offer an opportunity to indirectly tap the boom although they may never match the scale and valuations of online retailers.
Some of these e-commerce enablers are already receiving large cheques from investors and they are also seen as attractive acquisition targets for the likes of Flipkart and Jasper Infotech Pvt. Ltd, which runs Snapdeal, according to analysts.
E-commerce logistics firm SSN Logistics Pvt. Ltd, which runs its business under the brand Delhivery, said on Monday that it raised $35 million (around Rs.215 crore today), mostly from Multiples Alternate Asset Management; two days later, rival Ecomm Express Pvt. Ltd said it received Rs.100 crore in fresh capital from Peepul Capital.
Mobile advertising platform Vizury Interactive Solutions Pvt. Ltd, which helps e-commerce firms acquire customers by showing smartly placed product ads, raised $16 million in June. Last month, Flipkart bought a stake in NGPay, a mobile technology provider, after it decided to shut down its own payment gateway PayZippy. In July, product and price discovery website Reviews42 (rebranded as Zopper) received $5 million from Tiger Global Management.
According to investors, a few other e-commerce enablers including start-ups such as mobile wallet provider MobiKwik; and Browntape and Unicommerce that help third-party sellers and small businesses manage their online inventory as well as product discovery sites, are likely to raise funds over the next six months, though the cheque sizes are expected to be much smaller than those received by logistics firms.
“Many of these companies are laying the basic pipeline like logistics and payments for e-commerce companies. All these are fairly large opportunities,” said Mukul Arora, vice-president at SAIF Partners. “We have spent a lot of time on logistics companies and are looking at omni-channel enablers actively.”
A large part of the spending by online retailers translates into revenues for e-commerce enablers, and with billions being spent by Flipkart and Amazon, e-commerce enablers look attractive investments, said Abhishek Goyal, co-founder and president at Tracxn, which sells data on unlisted companies to investors.
“Now that the market for online retail is big enough and still growing exponentially, e-commerce enablers are catching the eye of investors, especially as we’re talking about billions being invested into e-commerce,” said Goyal, an early investor in Delhivery.
Flipkart said on 29 July that it raised $1 billion in fresh capital, and a day later Amazon.com Inc.’s chief executive officer (CEO) Jeff Bezos announced that the world’s largest online retailer would pump in as much as $2 billion into its India business.
Online retail sales are estimated to grow to $22 billion in five years from $3.1 billion, according to a November 2013 report by brokerage firm CLSA.
According to Goyal, advertising platforms, especially on the mobile, are likely to be the biggest gainers of the online retail boom, followed by logistics companies.
“Customer acquisition is key for e-commerce firms and they are willing to pay a lot of money to companies that help them get new customers. So Vizury seems to be in a good position. Of course, Google and Facebook will dominate this market, but there’s space for Vizury. Logistics providers will also benefit a lot, particularly as online retailers are looking to go deeper into smaller cities and towns, where they will need logistics providers,” Goyal said.
For instance, Delhivery expects sales of Rs.220 crore this year from Rs.62 crore last year as it adds more e-commerce clients and expands its operations to more than 250 cities, according to the company.
Ecom Express CEO T.A. Krishnan said the company hopes to deliver as many as 20 million packages this year against nearly five million last year.
Another sector catching the eye of investors is mobile payments.
As people increasingly use their mobile phones to buy things, safe and convenient mobile payment technologies are essential. Several payment gateways such as Paytm and PayU are planning to launch digital wallets and Flipkart’s investment in ngpay indicates that such companies are considered attractive investments by large-commerce firms as well as venture capitalists, experts said.
Paytm, a part of parent group One97, is in talks to raise another $100 million from new and existing investors, according to the company. Paytm’s investors include SAIF Partners, Intel Capital, SAP Ventures and Silicon Valley Bank. Apart from its payment technology, Paytm has also started a mobile marketplace to compete with Flipkart, Amazon and others.
“Payment is one of the biggest enablers for e-commerce to happen. With commerce now happening on phone, whether shopping for goods, travel, food, consumers want an easy and friction-less option, and hence mobile wallets adoption is increasing,” said Bipin Preet Singh, founder and CEO of One Mobikwik Systems Pvt. Ltd, which runs MobiKwik.
MobiKwik, which is attracting significant investor interest, is expected to raise over $20 million in the next three months, it said. The company declined to name the investors. Singh said investor attitude has changed in the last six-eight months given that consumer acceptance and merchant adoption for mobile wallets has increased and also regulatory environment has eased slightly for mobile wallets in the country.
To be sure, as with e-commerce firms, consolidation, either through mergers and acquisitions or through closures, is inevitable among the e-commerce enablers, too. For instance, several e-commerce logistics providers such as Chhotu.in and Dialaservice.net folded in the last two years.
“This is an industry where scale and quality is important. Investors are investing in companies that they think can survive in a shake-out,” said Suraj Saharan, COO at Delhivery.
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