In the two years between July 2013 and July 2015, Flipkart would go on to raise capital at a dizzying pace – seven times – taking in a cumulative amount of $3 billion from numerous blue-blooded investors. During the same period, its valuation would shoot up over ten-fold from roughly $1.5 billion to $15 billion.

It was a company that could do no wrong. A golden unicorn that everyone wanted to touch.

And then, the ninepins started falling. Exactly a year ago, in January 2016, CEO Sachin Bansal resigned and was replaced by his fellow co-founder Binny Bansal. A month later, former Myntra CEO Mukesh Bansal, whose company Flipkart had acquired for around $300 million in May 2014, also moved on.

And two days ago, Binny himself was relieved of his CEO post by Kalyan Krishnamurthy, a nominee executive seconded by Flipkart’s bigger investor, Tiger Global.

“Any business restructuring by general implies trouble, confusion and things not going as desired. Remember, if isn’t broken, don’t fix it,” says Parag Dhol, a VC with Inventus Partners.

Seeking strategic suitors

There are no more ‘financial investors’ Flipkart can turn to, only ‘strategic investors’,” says a senior executive with a competing e-commerce peer. He declined to be quoted by name.

By ‘financial investors’, he meant the likes of a venture capital, private equity, hedge or even sovereign funds. Conversely, by ‘strategic investors’ he meant large global conglomerates that viewed India as a strategic market and thus Flipkart as their bulwark or linchpin.

His view was shared by another person, also unnamed, an investment banker whose firm focuses on tech startups. “Flipkart not a pure investment for a fund anymore. And even for a strategic acquirer, they will want a clear path to being majority owners.”

This would mean ownership of 75-80% of Flipkart over the medium term.

Strategic investments leading up to a majority ownership require organisational alignment, which in turn requires the buy-in of the CEO. Thus Krishnamurthy’s remit is simple, as we understand it: dress up the company for either an IPO in 18 months or a sale to a strategic buyer even earlier. His primary allegiance is to his former boss and (on paper) currently the largest investor, Tiger’s Lee Fixel, who has over $1 billion invested in Flipkart.

Operationally, Krishnamurthy will continue to focus on ways to aggressively grow top-line revenue while keeping a tight leash on costs.

“Compared to hiring an outside CEO, Kalyan already shares a good working rapport with both Sachin and Binny, who look at him as a peer and not as an older professional. And the bonus: Kalyan isn’t about to run away, as he is an investor and working to maximise investor value,” says the senior executive quoted earlier.

Based on multiple conversations, the two clear ‘strategic players’ seem to be Alibaba and Walmart, with Softbank (which recently closed a $100 billion fund with the government of Saudi Arabia) acting as a powerful force multiplier depending on who it sides with.

AUTHOR

Rohin Dharmakumar

Rohin is co-founder and CEO at The Ken. He holds an MBA from the Indian Institute of Management, Calcutta and an engineering degree in Computer Sciences from the R.V.C.E., Bangalore.

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