Ebay Doubles Down

Ebay doubles down in the tech bargain basement that is India. While still retaining a small stake in Snapdeal, Ebay is rumored to be interested in making an investment in the other Indian E-commerce site, Flipkart. Due to Flipkart’s recent lower valuation, it may be a good time for Ebay to make a purchase. In fact, Snapdeal is currently cheap, too.

Ebay first invested in Snapdeal in mid-2013 and made another investment one year later. Snapdeal’s “complementary business model, good management and strong brand” were enough for Ebay to make its initial investment and eventually own nine percent of Snapdeal. Then in 2015 and with a change of heart, Ebay profited from selling some of its Snapdeal stock to Alibaba as reported in The Golden Tap.

Ebay made money exiting Snapdeal while others eagerly wanted in. At the time, Ebay said the following in a press release:  

Over the past two years, the valuation of Snapdeal has significantly increased, and because eBay was an early investor, this sale will enable us to earn a strong return on our invested capital

Snapdeal is now trying to raise more money, but at a lower valuation. In fact, Snapdeal is trying to save money with employee layoffs and the co-founders taking no salary. Such measures were necessary given Snapdeal’s financial trouble in the past year. So bad are things, that Softbank wrote-down its investment in Snapdeal last year. Based upon its latest filing, Ebay has not written down its last remaining slice of Snapdeal.

While not as bad Snapdeal, Flipkart’s turnaround seems to be succeeding under new CEO, Kalyan Krishnamurthy. Hopefully, Ebay will be lucky again, this time with Flipkart.

Tiger Global Whimpers

Once roaring in India, Tiger Global now whimpers. After pouring millions into Flipkart, Lee Fixel of Tiger Global is now struggling to stabilize his big wager in Indian E-commerce. Lee Fixel heads the private equity side of Tiger Global; the other side is a hedge fund. Trading public equities is simpler than managing private companies, as Mr. Fixel has discovered.

Tiger Global started investing small in Flipkart in 2009 by backing founders Binny and Sachin Bansal. Since then, Mr. Fixel has invested approximately $700 million only to see his investment turn south, in part, due to poor execution by management and competition from Amazon. Then last year, Tiger Global, along with others, effectively took control by replacing the original Flipkart co-founders.

Tiger Global alumnus, Mr. Krishnamurthy took over as Chief Executive Officer while the Flipkart co-founders found other duties. So far, Flipkart has started to turn around, at least, from where it was last year. It’s reported that Flipkart is seeking additional funds from Microsoft, Tencent, Ebay, and Paypal, but raising money is currently difficult; many Indian Unicorns have received lower valuations as seen by Softbank’s write down of its Snapdeal and Ola investments.  

Mr. Fixel needs to wait longer for an exit either through an acquisition or public offering. Until then, he must continue to directly managed his Flipkart investment. As a former stock analyst, Mr. Fixel must be realizing that the private equity world is very different than public stock markets.

 

Rolling Bones – Indian Style

You lose some and then you win some.

More news came out this week of Snap’s impending initial public offering. In an highly anticipated sale, one early investor is hoping to striking it big, Fidelity Investments. At the same time, in another under-reported story in the U.S., Fidelity wrote down its stake in the Indian e-commerce site, Flipkart. Fidelity now values Flipkart at $5.6 billion or thirty six percent less than before.  

Mutual fund money from investors such as Fidelity and T. Rowe Price flowed into private equity over the past ten years. Often the mutual funds piggybacked on the earlier trades made by venture capital firms. Mutual fund involvement with the “Unicorns” became a window on an otherwise opaque, private market. Markups and markdowns by mutual funds of their Unicorn holdings, became a proxy for a public market.

Now in India, the Unicorn market could be slowing imploding. Besides Flipkart, one of the other India e-commerce sites is receiving a reduction in valuation. Snapdeal, it was also reported this week, was seeking additional funding, but at a lower valuation. And one must remember that the same issue occurred to Ola back in the fall of 2016.

India has received considerable money from global funds and Silicon Valley venture capital firms, such as Sequoia. The money followed an investment thesis described as the “this-of-that”. Translated, the strategy meant taking business models from development markets and then investing in their emerging market equivalents. So for India, this meant Flipkart got head start on Amazon and Ola rode along with Uber.

As stated here before, money from big players – Tiger, Softbank, Alibaba, etc. – has flowed into India in the past ten years. As in other places, money and not technology was the prime determiner of the success as startups subsidized prices to attract and hold customers. But only companies with sufficient capital can continue to play the game. That is why the recent funding problems in India are so troubling.

 

Buying a Black Swan at Flipkart

Investors take over company and kick out the founders. This happened last week in India and the story was surprising under-reported in the United States. Kalyan Krishnamurthy takes over as chief executive of Flipkart, a company owned in part by Tiger Global. The management shuffle could be seen as Tiger Global exerting more control of over its investment after years of passive investing in the Indian Tech scene.

The story is also important for the potential parallels with the US tech scene. Tiger Global is part of the trend of “outside” venture capital money flowing into Silicon Valley and the other Silicon Valleys of the world. This process has been happening here since DST Global’s initial investment in Facebook back in 2009.

In compressed time, the process has played out in India. Kashyap Deorah wrote about his book, The Golden Tap.  As money flowed, there were boom times. But as the money now recedes, there are markdowns, no new investors, and a funding winter descending upon India. Trouble in India might be what we will see in Silicon Valley. Already there has been no real exits through public offerings, but only paper gains for limited partners.

Silicon Valley lives within a bubble until it bursts. Money flows animate much of what happens in the Valley and surprisingly those flows are so often misunderstood and unnoticed. Most did not take notice of one company until the activist investor Starboard Value exerted influence over Yahoo.