Morning Report: Understanding Flipkart’s Downround

Morning Report: What the heck happened to Flipkart? (Don’t worry, it’s still a decacorn.)

News out early this week indicates that Flipkart, a player in the Indian ecommerce space, has raised a fresh $1.4 billion at a post-money valuation of $11.6 billion.

The company has now raised a total of $4.65 billion according to Crunchbase, or 40 percent of its current post-money worth today. And, while the $11.6 billion number may sound impressive, for previously-recent investors, the figure is decidedly soft.

If it seems surprising that a valuation of more than $10 billion for a private, presumably-unprofitable tech company seems high, and not low, the following quote from a recent news story will explain:

The e-tailer said this capital was raised at a post-transaction valuation of $11.6 billion, a notable drop from $15.2 billion valuation in May 2015 when it had last raised funds of $700 million.

So Flipkart saw its value decline at the same time it had to sell more of itself on a pre-money basis. That’s not ideal.

What Happened?

A fine question. The answer isn’t too hard to find. In an April 2014 media reported titled “Saving Private Flipkart,” the following excerpt about the company’s than-extant issues stood out:

For a company that pioneered e-commerce in the country, growth has virtually stalled since the middle of last year and the leadership team hasn’t figured out a way to kick-start sales. Its innovation engine isn’t firing. In e-commerce lingo, the gross merchandise volume (GMV) sold over a given period of time has not grown substantially. In the offline world, it is the equivalent of saying, the sales or revenue numbers aren’t growing. And this, for the e-commerce pioneer that until now grew its GMV by over 200% per annum for the past three years.

If revenue growth cures all sins, as the saying goes, not growing when you have a big new valuation to make whole things get sticky.

However, don’t just blame Flipkart for having to take a down round.  The very market that it sells into has slowed to a halt. Out last week in The Economist was a piece concerning the broader Indian ecommerce industry, including the following, terrifying graph:

That means the situation isn’t constrained to Flipkart, but instead likely impacts its entire cohort.

What do you do when your entire market goes from tripling to flatlining? You take on a bunch of new cash while defending most of your valuation, it turns out.

From the Crunchbase Daily

Flipkart raises $1.4B round, inks eBay deal

• Indian e-commerce giant Flipkart confirmed that it has raised $1.4 billion in new funding at a post-money valuation of $11.6 billion. Backers include China’s Tencent, eBay and Microsoft, along with existing Flipkart backers Tiger Global, Naspers, Accel and DST Global. The company also announced that eBay will make a $500 million cash investment in and sell its eBay.in business to Flipkart in exchange for an equity stake.

TaskRabbit considers selling itself

• TaskRabbit, the popular app for finding people to do errands and household tasks, is considering a sale after receiving an inquiry from a strategic buyer, according to a Recode report. The nine-year-old company has raised close to $38 million to date and is reportedly close to profitability.

Crunchbase tracks Q1 global VC trends

• Global venture investment is projected to rise sequentially in the first quarter, reversing a slight downturn in financing activity during the fourth quarter of 2016, according to a Crunchbase News report. However, compared to the first quarter of 2016, rounds were flat and dollars invested fell slightly.