Embattled e commerce startup Snapdeal, which at one point was tinkering on the verge of collapse, is now reportedly engaged in fresh talks to raise funds from existing as well as new investors. Reports claim that the Gurgaon based company is looking to raise approximately $100 Mn in the latest round. The talks of fresh funding have come after Snapdeal had raised undisclosed amount of funding from Anand Piramal earlier this year.
Now Snapdeal’s talk of fresh funding has put forth two interesting aspects. The first interesting aspect is that one of the high profile investors that is reportedly vying for investment is SoftBank, the Japanese conglomerate which had completely underwritten its investment in the Gurgaon company in 2017 after the merger talks with Flipkart collapsed.
As is expected, SoftBank hasn’t commented about whether it is really planning to pump fresh capital in Snapdeal. But the Gurgaon based company would be more than willing to bring the Japanese conglomerate as its investor, since this would help in giving credence to its ‘comeback story.’ However, history probably suggests that SoftBank has rarely backed a company wherein it has underwritten the investment.
The second interesting aspect is the market valuation. If reports are to be believed then SnapDeal is vying for an impressive market valuation of nearly $800 Mn – 1.2 bn. If the company does manage to command this market valuation in the upcoming round then this will certainly help in completing its comeback story. Becoming one of the few Indian startups to stage such a spectacular comeback.
What has probably helped Snapdeal to sustain and overcome the adversity is its new business model. The enormous funding crunch in the aftermath of collapsed merger-deal with Flipkart, Kunal Bahl and Rohit Bansal went for a major pivot in their business model. Unlike in the past, the new business model focused more on unbranded product categories and second tier cities.
The decision made sense given that these segments are relatively underpenetrated and therefore offer huge potential for growth. But the only drawback is that any business model that is overwhelmingly dependent on unbranded categories and second tier towns usually entails in lower profit margins, which will resultantly have a long term effect on company’s balance sheet.
Now it would be interesting to see whether or not investors will consider this serious shortcoming in Snapdeal’s pivoted business model. Of course, this question will matter only if these funding talks fructifies into reality.
