The heart of the matter seems to be Snapdeal’s valuation

As Snapdeal board members battle it out company loses out on much-needed funding
Atom Ecommerce Saturday, April 01, 2017 - 10:12

As Snapdeal board members battle it out, Snapdeal loses out on much-needed funding

The heart of the matter seems to be Snapdeal’s valuation

In a clash between investors of Snapdeal, the ecommerce major has missed out on two funding offers – desperately needed by the company – in the last six months reports Mint.

According to the report, the feud is between Kalaari Capital and Nexus Venture Partners on one side, and SoftBank Group on the other. Kalaari Capital and Nexus Venture Partners are Snapdeal’s early investors while SoftBank Group is the company’s largest shareholder.  Sources tell Mint that Snapdeal’s valuation is the heart of the matter.

The same differences are also complicating a potential sale of Snapdeal. There have been media reports doing the round that Softbank initiated talks with Paytm and Flipkart to sell Snapdeal.  SoftBank was to put money into the ecommerce major to help it manage till a merger happens but Mint reports that for such a round to happen, Snapdeal’s other investors, who are on the board will either have to be bought out and will have to take a large haircut on their investments.

SoftBank’s offer to invest in Snapdeal has been rejected by Kalaari and Nexus as the funding would pull down the company’s valuation, significantly increasing SoftBank’s stake and reduce theirs in the company.

Now while Kalaari and Nexus want SoftBank to buy at least part of their shares, the Japanese investo has refused favouring a direct infusion of capital into Snapdeal.

SoftBank owns 33% of Snapdeal, Nexus 10% and Kalaari nearly 8%, according to documents with the Registrar of Companies, reports Mint. Co-founders Kunal Bahl and Rohit Bansal together own less than 6.5% of the company.

The reason why Kaalari and Nexus can’t let their ownership slide in Snapdeal is because it has been their biggest bet and the success of the two VC firms lies in a lucrative exit from the ecommerce major.

However, Snapdeal is facing the brunt of this boardroom battle, which is depriving it of much-needed cash. Since January, Snapdeal has cut hundreds of jobs, slashed spending on discounts and marketing and seen a sharp drop in monthly sales.

And this is not the only deal that was rejected. Last year, eBay offered to sell its Indian unit to Snapdeal and offered to put cash into the company. But the deal was rejected by the board due to valuation differences. eBay is a minority shareholder in Snapdeal

Snapdeal has been struggling to gain market share in the ecommerce place, which is currently being dominated by Flipkart and Amazon. Amazon, too, has been pumping in millions of dollars to take the #1 spot in the Indian online marketplace market.

As per a report by Business World, SoftBank has apparently given Snapdeal an ultimatum to either merge with Flipkart, join the Alibaba-Paytm entity or suffer a write-down of its investment.

Image: Biswarup Ganguly

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