“What can you do with $2 billion that you can’t do with one?”
Sean Connery asks this of Catherine Zeta Jones in the 1999 thriller, Entrapment. Notwithstanding the fact that both these characters play thieves in the movie, it is a question that you could just as well ask of Flipkart post its mega-funding round from Softbank.
“What can you do with $4 billion that you can’t do with 2.5?”
Money, money, money
When a startup raises funding and issues a press release, it is usually peppered with forward-looking statements detailing how it plans to use this largesse to disrupt, conquer, ding the world/universe or some part thereof. On the other hand, the press statement that Flipkart put out on raising its latest funding round from Softbank focused primarily on one point—“We now have more than $4 billion in our kitty”. That is a lot of money for sure. In fact, enough to make Flipkart the third-highest funded startup ever globally. The ~$7 billion in funding that Flipkart has raised in total so far is probably more than the total funding ever raised by every other Indian startup put together.
Why does one startup need so much money?
If you believe the pundits, this is needed to stave off its behemoth competitor, Amazon and “win” the Indian e-commerce sweepstakes. The broad belief is that Flipkart will use this corpus to finance deep discounts in the fight for customer loyalty and keep Amazon at bay.
But if you are an Indian consumer rubbing her hands in delight at the prospect of more wonderful sales coming your way from Flipkart, financed by the largesse of Softbank, you might want to wait and hold off exulting just yet.
There is a popular belief that e-commerce in India is relevant only because of deep discounting by the incumbents. While this might have been true at some point of time in the past, especially so when the likes of Flipkart were evangelising the concept of buying things online, those days are far behind us. Value for money is still important but this is driven more by operational efficiencies and scale economies rather than deep discounting. The players have also realised that trying to buy customer loyalty through discounts is chimerical and self-defeating in the long run.
So if this fund raise was not about financing further discounts, was it to stave off Amazon?
While the competition between Flipkart and Amazon has intensified over the past year or so, the burn rates of the two companies provide an interesting insight.
Flipkart used to have a burn rate of $60 million per month a year or two back. Today it is rumoured to be in the $30-40 million per month range. So, even though Amazon has been sniping at its heels and it has more funds in its kitty than ever before, Flipkart has actually pulled back its foot from the pedal, at least in terms of burning money aggressively.