Snapdeal is in news now a days. Not because it has launched new discount scheme, but because its very existance is in doubt.
Softbank Inc, largest shareholder of snapdeal has decided to sell the company to its industry rival, flipkart. As we all know, Snapdeal is e-commerce company floated by Kunal Bahl and Rohit Bansal. Company was started by them in 2010 as start up venture in e-commerce industry.
Like any new company, snapdeal also needed finance to grow. And like any other new startups, it had same problems – no security, no track record and no repayment capacity. Snapdeal was surviving hand to mouth, until it got backing of financial behemoth, softbank group.
Softbank group is a giant financial conglomerate from Japan. Majority stake of Softbank is held by Masayoshi Son, its founder member. This company has huge cash surplus and was willing to invest the same in most profitable avenues. Technological advancements, favorable govt policies and rise in tech savvy population made India a lucrative option to invest in. But where to invest? India was an unknown territory to Softbank and Masayoshi Son. For this, Softbank hired Mr. Nikesh Arora, a former google executive. Softbank gave a free hand to Mr. Nikesh Arora in 2014 to find investment opportunities in India. And here Nikesh Arora found Snapdeal.
In October 2014, Softbank invested $627 million in Snapdeal. Against this, it got ownership of 33% stake of Snapdeal. $627 million amounts to Rs. 3700 Crores, which was astronomical amount for Snapdeal. Snapdeal, which was facing liquidity crunch, suddenly got flooded with the cash due to Softbank investment.
With Softbank funds, in next year or two, Snapdeal grew by leap and bounds and became the fastest growing e-commerce company in India. It acquired smaller e-commerce companies like freecharge, Grabbon, Shoppo etc. Soon the competition turned into oligopoly with only three major players in the market – Snapdeal, Flipkart and Amazon. Softbank, Nikesh Arora, Snapdeal everyone was happy till the the time braking news came in June 2016.
In June 16, it was a shocker to know that Nikesh Arora had resigned from Softbank due to differences with Masayoshi Son. Departure of Nikesh Arora from Softbank was a heavy setback to Snapdeal since he was the bonding agent between Snapdeal and Softbank. All the controls were taken over by Masayoshi Son, and it was the beginning of problems for Snapdeal.
Things which were very positive till June 2016 suddenly changed within year, and may be in next one month, snapdeal will not be in existance…
What was the exact problem? And what will happen to Snapdeal now?
Stay tuned to read the concluding part in next blog.
CA Ashish Blog 