What the big deal means for Flipkart, Myntra, their investors & competitors

Sachin and Binny Bansal, co-founders of Flipkart, and Mukesh Bansal co-founder and chief of Myntra (all unrelated to each other), have just sealed the biggest ever deal in the Indian e-commerce sector.

This has added a bucket load of spice to the already hot e-com market with aggressive expansion moves by the world’s top e-tailer Amazon, back to back funding rounds worth around $233 million for Snapdeal and an equally significant recent funding for the second biggest player in the fashion category Jabong. Add to it impending public float of HomeShop18 and the recent IPO of lifestyle e-tailer Koovs.

Here’s a look at what the deal means for the key stakeholders:


Flipkart is already the country’s top e-commerce firm but its apparel vertical is believed to be still a small player in the Indian fashion e-tailing business. Although present in various product categories it derives a big chunk of sales from mobile handsets besides books, among other categories.

Fashion e-tailing is dominated by Myntra and Rocket internet-backed Jabong.

Merchandisers who have been stocking fashion apparel with both Myntra and Flipkart say the latter is doing well for sports apparel as a sub-category but Myntra is better placed in terms of managing inventory and other processes and is a much larger firm for fashion apparel and accessories.

Apparel is a big category in terms of profit margins and so could be particularly lucrative for Flipkart.

Earlier, Sachin Bansal had said he wanted Flipkart to become the top player in online fashion retailing before the end of 2013. However, it was nowhere close to meeting this ambitious target.

Given that Myntra’s acquisition is going to add fresh merchandise to its fashion vertical including more private labels, it is going to boost the product assortment on Flipkart. However, the two sites would need to create some differentiation to make a success of this deal. It is not yet clear how this would be done.

It would also benefit from wider vendor relations of Myntra and inventory management, given that apparel is a distinct category.

More importantly the deal creates an even significant competitor for Amazon and Snapdeal.

However, there are two big challenges. One is the classical issue of ensuring a smooth integration.  Secondly, and what could be a bigger problem to solve for the Bansals, would be to get consumers to buy from Flipkart, a task Flipkart’s apparel vertical team has found difficult to execute as consumer stuck to specialised lifestyle e-tailers.

This problem is similar to the offline retail world where consumers flock to a hypermarket chain for food, grocery, personal and home care products but prefer apparel retailers for their fashion consumption.

Founded in 2007, Flipkart is the most heavily funded e-commerce companies in India. The company has to date raised a total of $540 million in multiple rounds from investors including Accel Partners, Tiger Global, Morgan Stanley, Vulcan Capital, and Dragoneer, among others. It has the financial muscle to pump up the game further in fashion category along with Myntra.


Fashion e-com has been one of the most lucrative segments within online retailing thanks to juicy margins. Although the lifestyle e-tailers are yet to start making money Myntra as the top player in its segment has gained reasonable traction.

After getting seed funding in 2007, it raised a little over $5 million in its Series A funding back in 2008 from NEA-IndoUS Ventures, IDG Ventures and Accel Partners. In 2011 it raised $14 million led by Tiger Global in which some of the other existing investors participated. This was followed by a $20 million in a Series C round led by Tiger Global besides $25 million by the same investors in 2012.

As reported first by VCCircle, it raised more money early last year from existing investors valuing it just under $200 million, according to sources.

In the latest funding where it raised $50 million led by PremjiInvest, taking the total to $125 million to date, it was again valued at around $200 million. This shows the firm has been facing challenges in bringing on board investors with higher valuation. This could be due to the aggressive market activity by younger rival Jabong.

Jabong had been pretty active in building in business backed with marketing money from Rocket Internet. Although Jabong had decreased the volume of its marketing activity of late, the fresh funding from CDC and others has given it muscle to pump up action again.

The deal with Flipkart takes care of increasing decibel levels to match that of Jabong among others so that it can maintain its lead in its category.

Unlike Flipkart’s acquisition of LetsBuy two years ago where the electronics e-tailer was shut down, Myntra is far more lucrative as a standalone business. This would ensure flow of marketing money to grow the business further.

Myntra can also benefit from backend and delivery army of Flipkart for swifter order fulfilment.


Although the structure of the deal has not been disclosed it is expected to be entirely a stock transaction which means shareholders of Myntra will get shares of Flipkart.

The firm had raised funding from IDG Ventures, IndoUS Venture Partners (now Kalaari Capital), Accel Partners, Tiger Global, Sofina, PremjiInvest and Mumbai Angels.

Of these, Accel, Tiger Global and Sofina are also investors in Flipkart so they will get additional shares of the firm.

PremjiInvest is a clear gainer. Since it entered the company at a valuation of around $200 million and gets to swap stake in Flipkart at a much higher valuation (reportedly $330 million), within five months.

The deal also creates a tricky situation for Kalaari Capital, which gets a stake in Flipkart despite being a key shareholder in its key Indian rival Snapdeal. It had earlier also backed two others smaller horizontal e-com ventures Seventymm (which pivoted form DVD rental business) and Indiaplaza. However, both these are ventures are effectively shut even as their sites continue to be live.

IDG Ventures also expands its e-com portfolio. And possibly creates a pipeline for further consolidation by bringing together its own portfolio firms Valyoo Technologies (Lenskart among others) and FirstCry under Flipkart in the future.

While the deal would create many millionaires at Myntra, one tricky aspect could be for the ESOP holders. Flipkart’s holding company is now in Singapore and holding stock options and in the future shares of Flipkart would be tricky to liquidate.


The deal comes even as Snapdeal (already with a strategic funding and partnership with eBay) has just sealed back to back funding worth $234 million in total. Also Amazon recently added apparel category to its site. Jabong, believed to be the second largest lifestyle e-tailer has also raised fresh gunpowder. This would ensure Flipkart-Myntra does not run away with the cake.

But it does diminishes the game plan for various smaller and mid-sized fashion e-tailers in the country, some of whom have recently raised fresh funding.

As hinted by VCCircle earlier, there is always the potential deal where Amazon acquires Jabong to create a big challenger for the Bansals trio.

Footnote: We will keep a close watch on whether Flipkart makes a success of the transaction or this deal ends up as another investor forced consolidation.

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