by Mihir Dalal
Sachin had come up with a pithy counter to the ‘copycat’ argument. A venture capitalist who had remained sceptical about the company had once told him, ‘So what’s the big deal about Flipkart – you’re just copying Amazon.’
Sachin had replied, ‘Haan, theek hai. Tu kar ke bata de.’ Yeah, sure. You show us how it’s done.
11
SETBACK
In 2011, every experiment at Flipkart seemed to yield gold. Every successful initiative made the Bansals more confident, prompting them to think bigger and grander. A few months after raising $20 million from Tiger Global, they decided to seek as much as $150 million from new investors. Sachin had already set his sights on a valuation of $1 billion. For a company that was barely four years old, it would be an extraordinary achievement. Future Group, the largest retail chain in the country, had taken nearly two decades to get there.1 Even other prominent entrepreneurs like Dhirubhai Ambani, Sunil Bharti Mittal, Narayana Murthy and Azim Premji had built their corporate empires over decades.
The company also began to look at acquisitions seriously. Until then, it had bought just one startup, a book discovery tool called WeRead. In late 2011, Flipkart finalized the acquisition of Mime360, a Bombay-based startup that provided music-streaming software to record labels. The deal was part of Flipkart’s plan to sell digital services such as music and e-books. Flipkart executives were also eager to work with the Mime360 team which was led by two product–engineering experts, Sameer Nigam and Rahul Chari. Ankit Nagori, who was in charge of Flipkart’s digital business, had met Sameer and Rahul through common contacts at the record labels. Ankit was in negotiations with them to source content for the launch of Flipkart’s digital products category. Used to meeting executives at publishing houses and record labels that were proudly Luddite, he was floored by Sameer and Rahul. ‘Sameer was a mix of media and technology, and a great salesman. Rahul was pure tech. I called up Binny immediately and told him that here are two guys whose company we absolutely need to acquire,’ says Ankit.
A few weeks after buying Mime360, Flipkart took over Chakpak, the film content website founded by Gaurav Singh Kushwaha and Nitin Rajput, the Bansals’ colleagues at Amazon India. Chakpak had started off in 2007 on a promising note but the rise of Facebook had crippled its ability to attract advertising revenues. Realizing that the company had no future, its founders arranged a sale to Flipkart. It was just a way for them to avoid firing their employees, who were hired by Flipkart; there were no cash or stock payments. Nitin and a dozen other Chakpak employees joined Flipkart while Gaurav went his own way, to conceive his next startup idea.
Later on, as part of Flipkart, the Mime360 team launched Flyte, an online music platform. Users praised it for its attractive interface and easy delivery of music. But Flyte had to be shut down in 2013 – Indians didn’t want to pay for music when it was available for free on the internet. Sameer and Rahul remained with Flipkart and went on to become senior leaders at the company. Nitin Rajput also took up an important role in Flipkart’s product team.
By the time these acquisitions took place, Flipkart was engaged in fundraising discussions with General Atlantic, a private equity firm based in New York. Other investment companies had shown interest in Flipkart but baulked at its asking price of $1 billion. General Atlantic was one of the few willing to meet this demand. It wasn’t a typical investment company; General Atlantic was a highly regarded private equity firm globally. It had been a picky but intelligent investor in internet startups, boasting holdings such as Facebook and Alibaba. An investment by General Atlantic would put an elite stamp on Flipkart. Lee Fixel was friendly with a partner at the firm, and had introduced him to the Bansals. Sachin had led the talks, visiting the General Atlantic headquarters in New York several times along with Binny. Sachin believed that the deal would mark the moment when Flipkart – and he, its CEO – had arrived. It would catapult Flipkart to the global stage and validate the Bansals’ status as visionary entrepreneurs.
After several months of discussions, in late 2011, General Atlantic finally signed a term sheet to invest in Flipkart. While a term sheet is not binding, it typically converts into transactions. General Atlantic then began their due diligence process, auditing Flipkart’s books and financial records.
The auditing took another few months. At Flipkart, the founders and investors were growing increasingly anxious. After signing the term sheet with General Atlantic, they had ended discussions with other investment firms. Now they were worried about cash flow. Flipkart’s business, ever expanding, was sucking up increasing amounts of cash. They had expected the General Atlantic deal to close by now but the firm had raised questions about the state of Flipkart’s accounts. It was also concerned that Flipkart might not be compliant with India’s foreign investment rules that prohibited inventory-based e-commerce firms from receiving foreign capital.
It was true that in the rush to expand, Flipkart had neglected setting up proper accounting systems. The company had hired a finance chief in 2010 but he had turned out to be a misfit – as were many others who were confounded by the speed at which Flipkart was moving and had urged the Bansals to slow down in order to put proper processes in place. But the Bansals explained to the fund managers at General Atlantic that Flipkart’s frenetic growth had overwhelmed its accounting systems. They assured the financiers that Flipkart was close to hiring an established chief financial officer who would soon help fix its systems. They also explained that the company’s legal structure was sufficiently clean – most e-commerce firms had similar structures. General Atlantic seemed pacified – they knew that weak accounting systems were a common feature at high-growth startups across the world. Yet they kept postponing the signing of the deal. At the same time, they assured Flipkart that their extensive diligence process was a norm and that the issues it had discovered were minor.
Finally, at the end of 2011, General Atlantic informed Flipkart that its investment committee had approved the deal. The firm had agreed to the $1 billion valuation. The Bansals were elated – months of painstaking discussions had finally concluded. Flipkart’s investors, Tiger Global and Accel Partners, were relieved after having watched the slow progress of the discussions with increasing concern.
A day before General Atlantic had indicated it would sign the deal and send the investment amount, Lee Fixel got a call from his friend at the investment firm. The conversation was brief, tense. In an apologetic tone, he told Lee, ‘Sorry, we’re pulling out.’
Lee, usually unflappable, was furious. Flipkart had carried on in the belief that the General Atlantic deal would come through. Now the company was on the verge of running out of cash – it was utterly helpless. To save Flipkart, Lee would have to persuade his partners at Tiger Global to put up $50 million in emergency funds. It wasn’t a conversation he was looking forward to having. It was a humbling moment for the young fund manager, one of the most frightening points of his promising career, something that could have caused serious damage to it.
A few days after General Atlantic backed out, Tiger Global injected $50 million into Flipkart. Accel Partners India, which was a far smaller fund than Tiger Global, had to ask its US parent to wire funds to Flipkart whose capital needs were beyond its capacity.
The episode was a watershed moment for Flipkart. It marked the point at which Lee Fixel became heavily involved in the company’s affairs, when his career became inextricably linked with Flipkart. Until then, Lee’s role had been confined to that of an investor, board member and advisor to the Bansals. After this event, Lee’s involvement went far deeper; he frequently weighed in on the company’s strategy, sometimes even on new executive appointments. And he took charge of fundraising. According to another Flipkart shareholder, Lee became ‘the company’s lead investor and investment banker’.
Sachin, on the contrary, receded from the daily administration at Flipkart. As much as the General Atlantic pullout had shocked Flipkart’s investors, Sachin took it the hardest. It was his first b
ig failure, a blunder that could have brought about the end of Flipkart. While he could blame General Atlantic, the responsibility for the fiasco would still have to be borne by the CEO. There was no escaping the reality that Flipkart had been on the brink. It was now painfully clear to Sachin that despite his company’s substantial achievements, it was ultimately at the mercy of investors – outsiders to Flipkart. His dream of fetching the $1 billion seemed to have been crushed. His confidence was shot, his stature diminished. He continued to be the face of the company and to lead the fundraising discussions. But it wasn’t until the end of 2014 that he would recover his former influence over Flipkart’s everyday affairs. It was evident to those who worked closely with Sachin that he had taken the blunder personally. ‘He was crushed,’ recalls a former Flipkart employee. ‘Who had seen that kind of success so quickly before? And then suddenly to come so close to seeing it all collapse ... he couldn’t deal with it.’
In 2016, Sachin referred to the chastening experience at a panel on entrepreneurship at IIT Bombay: ‘One [piece of] advice I would give to [entrepreneurs] is that you should raise funds when you can rather than when you have to. Which means that you don’t get into a situation where your business needs funds and you have to really look for investors. Don’t push the company to that point. Raise funds when you can.’2
At General Atlantic, history would repeat itself. In the mid-nineties, the firm had lost out on investing in Amazon before the American online retailer listed its shares. Amazon had chosen an upcoming venture capital firm in Silicon Valley over General Atlantic.3 It turned out to be a costly miss for the fund: Amazon’s shares vaulted after the company went public a few months later. This time, with Flipkart, it was General Atlantic that had chosen to stay out, and the miss wouldn’t look any better for it.
AFTER SUPPLYING THE emergency funds to Flipkart, Tiger Global and Accel Partners began to reduce their risk elsewhere. By now, these two firms had invested in many e-commerce startups. One of these was Letsbuy, a website that sold electronics goods. Letsbuy had rapidly established a large business mostly by luring customers with heavy discounts. Occasionally, the company was even generating higher monthly sales than Flipkart’s electronics category. BusinessWorld magazine had decided to profile the company for its cover story.
Since Letsbuy had burned a lot of cash, its founders Amanpreet Bajaj and Hitesh Dhingra needed the next round of capital to carry on. Lee Fixel had told them he would back the company. After talks with Lee, the Letsbuy founders pulled out of discussions with other investors. But suddenly in January, Lee told them that he had changed his mind.
While Letsbuy was showing impressive growth, it had major flaws. Its logistics and warehousing systems were a mess. Its technology platforms were substandard. Some employees had even complained to its board of directors that the company was badly run. Lee and the other Letsbuy shareholders suggested to the founders that they sell the company to Flipkart. With little cash leftand no new investors on hand, they had no real choice. Flipkart bought Letsbuy in a distress sale in February 2012.4 BusinessWorld had to pull its cover on deadline day. Within a few months, Flipkart promptly shut down the Letsbuy business.5
By early 2012, e-commerce in India had become a crowded space. There was eBay, and even though it was flailing, continually changing its strategy and leadership team to little effect, it was still a big name. Over the past eighteen months, a large number of domestic e-commerce startups had entered the fray. But most of these startups lacked the sincerity, ability and resources to last. None had built the kind of sturdy infrastructure of warehousing, logistics and technology that Flipkart had developed. They kept only one weapon in their arsenal: discounts. Every month a new website, fresh from receiving a dose of capital, sprouted up, bearing goods at massive discounts, only to collapse as soon as the money ran out. One could argue that this was like a self-fulfilling prophecy. But during a funding boom, when investors move in a herd, logic is swept aside by the momentum of the crowd; whatever investors and startups decide in the moment is right – until it’s not. It was Flipkart’s takeover of Letsbuy and its ensuing shutdown that suddenly made investing in e-commerce startups a questionable gamble. Over the next two years, dozens more e-commerce startups would fold up.6
Few survived the capital famine. Among the ones that came through were Infibeam, Snapdeal, Shopclues, BigBasket, Myntra and the Rocket Internet group.
Infibeam, whose founder Vishal Mehta had come so close to convincing the Bansals to give up their dreams for a pittance, were now far behind in the game. The Ahmedabad-based firm was only a fraction of Flipkart’s size.
It was Snapdeal that was emerging as a serious rival to Flipkart. Snapdeal was founded by Kunal Bahl, its CEO, and Rohit Bansal, the COO. Of the two, Kunal was the face of the company. Born into a business family, Kunal had studied at the Delhi Public School. He had met Rohit when they were teenagers. Kunal, who exuded the easy confidence born of a privileged upbringing, came across as a charismatic man. Rohit, a small-town boy, was awed by him. Soon, Kunal converted the vegetarian Rohit into a meat-eater. Kunal had wanted to study at the IITs, but unlike Rohit, had failed to make it despite trying for two and a half years. Dejected, he moved to the US and got his engineering degree from the University of Pennsylvania, and later studied business and marketing. After college, Kunal got a job at Microsoftbut was forced to return to India as he couldn’t get a work visa extension. On his return, he immediately called on Rohit and the two started working on a business idea.
In 2007, they began by distributing coupons. Soon, they turned this into a daily deals website. Finally in 2011, they moved into e-commerce. Such dramatic shifts in the business may have seemed implausible and suspect, but Kunal had little trouble in convincing investors to back him. He was a slick talker, a master of PR. In meetings with journalists, Kunal would make it a point to talk about two elements of his life: his schooling at Delhi Public School – the R. K. Puram branch – ‘the only DPS that matters’, and how he had bravely overcome the denial of a visa extension in the US. Kunal’s mannerisms and personality made a mark; he often broke out in guffaws, not unlike Jeff Bezos. He relished the spotlight that came along with Snapdeal’s rise; his Twitter handle read: ‘Entrepreneur. Maybe Politics.’7
Kunal stood out in an e-commerce ecosystem populated by introverted software engineers such as the Bansals – Sachin, Binny, and even Rohit. In fact, Snapdeal’s shiftto e-commerce had made Rohit feel a bit awkward. It put him in direct opposition to Binny, who had been his classmate at IIT Delhi. In their first year of college, they had even been close friends. When Snapdeal entered e-commerce in late 2011, it chose the marketplace model – the goods listed on its site were owned by third-party merchants; the company didn’t have inventory of its own the way Flipkart did. Over the next five years, Snapdeal would be a constant irritant for Flipkart and Kunal would become a bitter opponent to Sachin. Every time it seemed certain that Snapdeal would run out of cash, Kunal would miraculously pull off a fund raise. Snapdeal came to be known as The Cat With Nine Lives.
There was also Myntra, which had been funded by Tiger Global and Accel Partners as well. Myntra had started life in 2007 as a seller of personalized gifts. In 2011, Myntra changed its business to become a fashion-selling website. Its co-founder and CEO Mukesh Bansal was familiar with Sachin and Binny. They had known each other since 2007. Mukesh’s startup had, in fact, received funding from Accel Partners more than a year before Flipkart did. Despite having less capital in the years to come, Myntra would stay ahead of Flipkart’s fashion business for nearly three years.
As Indian e-commerce startups struggled in 2011 because of the funding slowdown, Amazon made its first concrete move to enter the market. In early 2012, Amazon launched Junglee, a price comparison website (of the kind Sachin and Binny had initially wanted to launch in 2007).8 The purpose of launching Junglee was to supply Amazon with important information about the shopping habits of Indians. Amazon would use this knowledg
e later to plan its own e-commerce business in the country. The launch of Junglee further unnerved investors in local startups.
AROUND THE TIME of the Letsbuy acquisition, Flipkart tweaked its hierarchy again. It hired a new chief financial officer, Karandeep Singh. Karan, a soft-spoken Sikh chartered accountant, was an accomplished finance leader; he had worked in senior finance positions at large companies including Yum Brands and Dell. In his early forties, he came to Flipkart as one of its oldest employees.
The company also asked Ankit Nagori, who was heading its books and digital business, to take over all product categories. He would continue to report to Sujeet Kumar. It was yet another significant promotion for Ankit. Along with his inexhaustible stamina, Ankit had also displayed impressive business acumen as well as the cunning to get ahead of other shrewd, ambitious men, most of whom were older than him.
Ankit’s promotion further strengthened Sujeet’s hold over the company. He now wielded complete control over Flipkart’s operations and sales through his lieutenants. Sujeet, too, had joined Flipkart as an unaccomplished young man. It had been an exhilarating ride for him. After Sachin and Binny, and apart from the institutional investors, he was the biggest shareholder in the company. The financial reward was huge. But Flipkart was special to Sujeet for another reason: he had made something of himself there, as had Ankit and hundreds of others.
