SoftBank, Tiger Global, Naspers, others make big gains out of Flipkart-Walmart deal
BusinessToday.In May 10, 2018
The online book-selling company that started from a 2BHK apartment in Bengaluru in 2007 went on to become India's largest e-commerce company with over $20 billion valuations in just over 10 years. The ride to the billion-dollar club was not an easy one, and it marks the determination with which two young IIT-Delhi alumni, Sachin Bansal and Binny Bansal, kept on going and led Flipkart to become one of the 10 unicorn companies in India. The year 2016 was particularly tough for Flipkart when its valuation dropped from $15.2 billion in 2015 to $5.54 billion in 2016, primarily hit by two major cuts in its shares by Morgan Stanley Mutual Funds. However, the year 2016 was the time when Flipkart catapulted the whole game by bringing in changes in the company's functioning as well as leadership roles. The current $16 billion Flipkart-Walmart deal marks a milestone in the history of India's start-up ecosystem. The deal this big not only made fortunes for Flipkart founders but to investors who believed in India's growth story. Around seven big Flipkart investors, including New York-based Tiger Global Management and Japanese multinational conglomerate SoftBank, have made billions of dollars from the deal.
Four of Flipkart's biggest investors agreed to sell their stakes to Walmart, but the newest and biggest investor, SoftBank, which invested $2.5 billion in the company, will take away a big pie - $4billion - out of the mega-deal, that too in just one year of investment. The Japanese conglomerate had bought a 20 per cent stake in Flipkart through its $100 billion technology-focused Vision Fund. It was the biggest ever private investment in an Indian tech firm at the time. SoftBank, in its new earnings report recently disclosed that SoftBank's Vision Fund and a companion fund have already booked about $3 billion in unrealised income in the last year, excluding the Flipkart deal. Combine that with the money this massive investment fund will stash after the Flipkart returns. On Wednesday, Masayoshi Son, chief executive of SoftBank, held a press conference in Tokyo revealing the Walmart-Flipkart deal, and disclosing that SoftBank's $2.5-billion stake would be worth $4 billion after the exit.
Tiger Global Management or TMG's Lee Fixel, which has been with Flipkart since its early days in 2009, will earn $3 billion from its total investment of $1 billion in the company. TMG had 21.99 per cent stake in the company with two representatives on the 10-member board. The TGM will continue to hold around 5 per cent stake in Flipkart. Lee Fixel-led firm poured over $1billion in the India start-up, leading multiple financing rounds starting from $10 million in 2009 to $700 million in 2015. The aggressive investment by the New York-based fund has finally paid off giving it one of the largest investment returns from India's venture capital investment industry. With Flipkart, the $11-billion venture capital fund will mark its third biggest exit after JD.com and Swedish entertainment company Spotify.
South Africa-based global internet and entertainment group, Naspers sold its 11.18 per cent stake in Flipkart to Walmart for $2.2 billion at a whopping IRR (internal rate of return) of around 32 per cent on its investment of $616 million in August 2012. The company says the money be used to reinforce Naspers' balance sheet and for the growth of Naspers' classifieds, online food delivery and fintech businesses. Apart from Flipkart, Naspers also retains stakes in OLX, PayU, Swiggy and MakeMyTrip. Bob van Dijk, Group CEO, Naspers, said: "We are proud to back Indian entrepreneurs whom we believe have what it takes to build outstanding and long-lasting businesses, and Flipkart is a great example of this."
Since the beginning of Flipkart's journey, Accel has been a stalwart supporter of the Flipkart team. Flipkart was one of the largest, most visible, and most significant investments for Accel globally. The American venture capital firm, which earlier controlled 6.88 per cent stake in Flipkart, will now keep some shares in Flipkart. The company initially invested around $800,000 in seed funding in Flipkart in 2008 and continued to invest in subsequent years through various rounds. So far, the company had around $160 million of investment in Flipkart. Being one of the earliest investors, Accel will take away over a billion dollar, marking its one of the biggest exists.
After his decision to sell the entire 5.9 per cent stake to the US retail behemoth Walmart, Flipkart co-founder Sachin Bansal would likely collect around $1 billion from the mega-deal. Bansal, who's also the executive chairman of Flipkart, will step down from its board. Sachin Bansal, along with Binny Bansal, co-founded Flipkart in 2007. With equal measures of nostalgia and encouragement, Sachin in an emotional Facebook post said: "Sadly my work here is done and after 10 years, it's time to hand over the baton and move on from Flipkart. But I'll be watching and cheering from the outside - Flipsters, you better continue to do a good job!"
The San Jose, California-based company's Indian arm, eBay India, was acquired by Flipkart in 2017. The company will now sell its 6.55 per cent stake in Flipkart for about $1.1 billion. With the Indian online market pegged to be around $200 billion in four-five years from now, the deal also brings eBay a brand new opportunity to relaunch eBay India again. "We plan to relaunch eBay India with a differentiated offer to focus initially on the cross-border trade opportunity, which we believe is significant. We believe there is huge growth potential for e-commerce in India and significant opportunity for multiple players to succeed in India's diverse, domestic market," the company said in a statement. eBay, Tencent and Microsoft had invested around $1.4 billion in Flipkart in 2017 to buy an equity stake, in addition to investing $500 million in the company.