Lessons from the Walmart-Flipkart Deal

Walmart's acquisition of Flipkart for $16 billion is the most exciting news for a variety of reasons and means a world for Indian Retail Industry. It is exciting because for a team of co-founders who braved the odds of running an E-Tail startup against all rejections, criticism and hardships for 11 years, this deal is the proof of concept that startups in India can not only succeed or become a unicorn (having valuation above $ 1 Billion) but get scaled upto a level that attracts the attention of the world's best investment bankers and giants like Walmart, Amazon (in the way its been pumping before and after the deal was announced) and Alibaba (who is also eyeing the Indian E-tail space). The deal happened to a company that is yet to enter "teens" but it will fire up the imagination and enthusiasm of millions of young people in India and South Asia to dream big in startups. The deal is also going to make bankers sit up and take notice as many of them are still unable to determine using conventional templates how to value and finance a company having negative EBITDA or higher cash burn rates. There has to be a way for project-financing bankers to participate in growth opportunities without collaterals. On the day of the deal announcement, Flipkart had accumulated losses over Rs.24000 crore (almost $ 4 Billion) but the ones who will make money from this deal will be Softbank (if they exit), Tiger Global, Accel Partners, Tencent Holdings and others who took risks. The deal is going to sizzle up the Investment Landscape too - with Alternative Asset-Class becoming worthy of Investment-grade by UHNWIs and HNWIs. OF course, not every deal will be a runaway success but we are at an inflection point today just as we were when we only had Templeton, UTI and Canbank and Indbank peddling Mutual Fund Schemes. The deal is also going to make all those Billionaires in India wake up to threats of their brick-and-mortar businesses without focusing on areas of impact - Artificial Intelligence-based Algorithms, Supply Chain connectivity, Top-notch managerial talent and Financial Innovation. And finally, the deal is just a scratch on the surface of the $750 Billion Retail Merchandise industry. Walmart is known to upend most of the Retailing oligopolies wherever they set foot and their move here will sure trigger agitations and backlash from existing stakeholders in India's vast Retail order but it is one of the tipping points for a host of reasons as above. There have been enough poison-pill reports by startup commentators in the last few years about whether India is going overboard with obsession over unicorn valuations and startup movements. This deal is an answer to all that fuss over valuations. The next time someone kicks their job to start up a company (even if it is not IT-related) or gets a campus offer from a startup or raising funds via crowdsourcing, respect them and wish them well - there is honor and promise in such risk-taking. Lastly, welcome to the benefits of Flexible thinking. We live in an era where a Tech-averse Warren Buffett has mended ways to invest in potential $ 1 Trillion tech companies like Apple. Follow the cheese, wake up and smell coffee! Congrats Bansals. #FlipkartDeal #WalmartFlipkart

Flipkart

Flipkart was the person of the year for book-lovers in 2011 and they are doing great service by delivering books at your doorstep and even offer cash on delivery for those who dont use internet or wary of netbanking. But how long will they bleed? Two things are going against them. A tirade against them by the publishers and a backout by Amazon - the big boys of books. Second thing first, Amazon ha...s now categorically denied any interest in buying flipkart or infibeam in India - they will enter on their own. This means, flipkart will now have to manage on their own despite a One Billion dollar valuation. They have hired their own courier, outsourced cash on delivery, and branched out into mofussil and non-metro locations in the scramble to get volumes that will interest buyers. Lastly, to talk about the tirade by publishers - a few weeks back, all the publishers from Hachette and Random House to Rupa etc. have summoned the owners of flipkart to stop bleeding them and retailers by giving discounts upto 35 per cent. In some cases, the publishers are giving 35 pc discount to Flipkart while they in turn pass on 40 pc discount. Nobody is complaining because the book-buyers are benefiting. But there has to be a sustainable model - and book distribution is not such a lucrative business. While there is boom on one side, there is gloom at the retail side - which I will address separately. Thats a little update on flipkart. In Hyderabad, they do now average 2500 deliveries a day. But sustainability and cash flows will sooner or later be called into question. Thats the point any PE Investor or Suitor will ask. As far as I know, close to Rs.4000 crores of receivables is getting stuck in Educational Institutions who order books but dont have money to pay - I am talking about the Engineering/Technical Institutions who are seeing a massive payment crisis which is actually a scam in disguise. Those who wish to know can PM'me...