Of the nearly $1.8 billion that Snapdeal has raised in funding from 23 investors over 12 rounds, nearly $900 million came from just one: SoftBank. The Japanese technology and investment conglomerate invested more into Snapdeal than all of the other 22 investors put together.
Yet in the last few days, leading newspapers Mint and Business Standard have reported that Snapdeal’s earliest investors—Kalaari Capital and Nexus Venture Partners—have vetoed SoftBank’s efforts to sell the company.
Together with Snapdeal’s founders, Kalaari and Nexus are learnt to have asked SoftBank for $150 million in cash (and not the stock of any acquiring company) in order to agree to a sale transaction.
A sale transaction because any further meaningful or sizeable venture investments into Snapdeal are out of the question. The one-time number-two e-commerce player is in a downward spiral of falling sales, shrinking employee base and collapsing valuations out of which there is no coming. At least not in a way that makes sense for any late-stage venture investor.
Which is why SoftBank wanted to find an acquirer for Snapdeal—Flipkart. The deal was simple—Flipkart acquires Snapdeal at an enterprise valuation of $1 billion, following which SoftBank invests another $1 billion in the company as a continuation of latest $1 billion round. It then acquires $500 million to $1 billion of Flipkart stock from its largest investor, Tiger Global.
SoftBank was understood to even have offered 80 cents in cash for every dollar in Snapdeal stock held by its investors, but at a valuation of $1 billion. Snapdeal’s peak valuation was $6.5 billion.
If things went well, the sequenced transactions would be completed sometime as early as May.
But things didn’t go well, and now SoftBank is locked in a who-blinks-first game of chicken with Kalaari, Nexus and the Snapdeal founders.
The chicken game
There is now the very real possibility that Flipkart may not acquire Snapdeal.
So what, you may ask. Surely there are many other potential acquirers? Better yet, why does Snapdeal even need to sell itself? Didn’t it just announce its decision to go for an IPO?
Snapdeal is a unique company. It’s a company that is trying to hold on to its past valuations even as its current revenues and future growth look appear very dim. Its current revenue (GMV) run rate is estimated to be between $350-400 million annually. In contrast, Flipkart’s is estimated to be closer to $4 billion.
That’s 10x of Snapdeal’s.
Interestingly, if Snapdeal is indeed valued at $1 billion during a potential acquisition, how would that compare to Flipkart’s current valuation?
10x again (Flipkart raised its current $1 billion investment at a valuation of $10 billion).
But we digress—the point is Snapdeal has been in the market for months, to either raise money or to find a buyer.