FreeCharge, India’s second-largest mobile wallet company, must easily be the most sought after investment in Indian e-commerce, even though technically it isn’t even for sale.
How else would you explain the steady stream of deep-pocketed international investors that have been in the final stages of discussions to invest in it?
SoftBank and Foxconn started conversations with it to invest around $300 million in October 2015, just six months after FreeCharge was acquired by Snapdeal, India’s third-largest e-commerce company. Snapdeal is understood to have paid approximately $150 million in cash and $300 million in its own stock to acquire FreeCharge.
Then in May 2016, multiple Chinese firms and sovereign funds were in talks to invest in FreeCharge.
By August 2016 China’s Foxconn was in advanced stages to buy 26% of FreeCharge after valuing it at $1.2 billion. In parallel, Tencent, another Chinese giant, was also said to be in advanced stages after intense discussions to invest $150 million in FreeCharge, valuing it at over $1 billion.
Just two months later SoftBank, the major investor in parent Snapdeal, was reported to be back in the game to invest in FreeCharge, ready to put in between $150-200 million, at a valuation of between $700 million to $1 billion.
Another two months later, in December 2016, PayPal was in the final stages of investing around $200 million for a 25% stake in FreeCharge.
Unreported in the press were conversations Snapdeal had about selling a stake in FreeCharge with Flipkart, India’s largest e-commerce company, and its primary rival; Airtel Money, the mobile wallet operated by Airtel, India’s largest mobile operator; China’s Baidu; and Paytm, the market leader in wallet payments.
While Flipkart is learned to have said no to investing in FreeCharge, it was embarking on its own similar exercise, trying to raise money for PhonePe, the mobile payments startup it acquired in April 2016.
Flipkart is reported to have held early discussions with PayPal (yes, again) and Naspers-backed PayU to raise between $100-200 million for PhonePe. At a valuation of $500 million.
Why are two of India’s leading e-commerce giants going all out to solicit investments in companies they’ve acquired?
Flipkart and PhonePe
Flipkart acquired PhonePe merely months after the company was started, and while its product was still on the drawing board. The (largely) stock and cash deal was reported to have been between $10-20 million.
The team building PhonePe was smart—Sameer Nigam, Rahul Chari and Burzin Engineer—and already had multiple competing term sheets from venture capital funds for their initial investment. Additionally, the trio was also in the unique position of having already sold a company to Flipkart earlier—digital media distribution company Mime360 back in 2011.
In PhonePe, Flipkart saw an opportunity to not only repair its self-inflicted wounds in payments (it committed strategic hara-kiri by shutting down its in-house payments wallet service Payzippy in 2014, after just over a year of operations) but also ride the digital payments wave that was gradually building up, even as e-commerce became less ‘sexy’.
