Co-founder Sachin says IPO in the pipeline, won’t give a deadline
In a SenseXclusive interview with WallStAnalyst’s Sanjay Pandey, Co-founder of Flipkart Sachin Bansal justifies investing in future growth of company as against becoming profitable, touches upon the company’s IPO plans and its imminent shift to m-commerce.
Edited excerpts from the interview:
WallStAnalyst: In the last four years, more than 1,200 ecommerce companies started up in India. While many were forced to fold up as they failed to get funds from investors, several are desperately looking for buyers. It seems to be survival of the biggest in the ecommerce sector. What is your take on this?
Sachin Bansal: I know it is a tough environment. It is easier to start an e-commerce company because you require little starting capital as compared to traditional businesses. But the phenomenon that we are seeing in India is no different from what is seen in the internet space globally.
WallStAnalyst: Startups have no problem in getting the seed funding. But when they get to the second round of funding, investors lose interest in them. So what is that worked for you when you started up the business?
Every startup will have their own challenges and stories. They have their own capabilities or shortcomings in certain areas. So was the case with us when we started. As a small startup, we also struggled. When we were young attracting investors was as difficult.
Let’s see what an investor looks for in a company. They look at three things. First, they look at how big is the market where the startup is functioning. If they are operating in a small market, even if they become successful, it is not going to be a huge upside for the investor.
Secondly, as an investor they look at the team as to whether the team is ready to do what it takes from sweeping the floor, to building relationship, to writing quotes and doing marketing. Because building a startup is not about doing one or two things that you do when you are in a job. It is about doing a lot more things. And circumstances change very dynamically and you will have to adapt to them. So I think having a good team is very important. When it comes to companies of the size of Flipkart, the role of management team is very impart in taking decision on recruitments.
The third aspect that investors look at is execution. The market is there, the team is good but can they execute? Can they do things which are differentiated enough to attract investors? Are they able to understand their customers and markets well? Can they apply that on a day-to-day basis? As one of the investors said, ‘Ideas are cheap, it is the execution where a lot of startups fail’. When Facebook started there must have been several other companies that had similar ideas. But what made Facebook stand out of the crowd was its execution. I think proven execution, team and the market these are the key to success.
WallStAnalyst: What goes into selection of a team? What is that a startup sees in a candidate joining the team?
When you are a small startup, nobody wants you. So, you have to pick from who wants to join you and also use your own network to build a team. I think there is a big filtering criterion: people who are willing to join a garage startup with no clarity on future, they are self-selecting themselves. If they are serious about joining such a small company, it means that they are already of that risk-taking mindset. In the early days, we have had a few big hires — Sujit Kumar who was my senior from IIT Delhi and Mekin Maheshwari who was working with a startup in Bangalore. Both of the people liked what we were doing, they liked being in an entrepreneurial environment. There was no clear cut role for anybody then. You will have to work as a team. If they are just coming in for better salary or bigger position that wouldn’t click with us. We welcomed people who wanted to do something different. Now, things have changed. The amount of ownership, freedom and quality of work is attracting a lot of people to startups.
WallStAnalyst: Flipkart has been a revenue guzzler since its inception in 2007. In FY 13, the company reported a loss of Rs 281.7 cr. When is the company expected to grow cash positive and what are the key strategies in mind?
We can be cash positive in the next quarter, if we want to be. What will that mean? It would mean lesser investment. We will have to slow down our pace of investments into infrastructure and technology. A lot of thing that we are building at Flipkart are not for the next quarter or six months, they are being built for at least three years. If we stop doing that we can be profitable tomorrow. Will that be the right thing to do for business? No. In 2012, the size of the market was estimated at $ 1.2 billion. It can be as large as $50 billion by 2020. If that happens, then it will be actually stupid of us to stop investing. We are betting on growth more than profitability.
WallStAnalyst: The internet penetration in India is less, do you think it will delay the break even or profit ability stage?
I don’t think it is less. It is growing very fast. If you look at the numbers in the past two years, there are signs that if things go at the current pace, it can accelerate even further. Online shopping will be driven by mobile. Mobile shopping is going to be the next big thing in online shopping. A lot of people who don’t have a laptop or have no use for laptop could be the potential customer for m-commerce. In three or four years, most people will have a data-enabled smartphone, so we are betting on mobile shopping or m-shopping. That’s where we are moving.
WallStAnalyst: At present, FDI in business-to-consumer (B2C) is prohibited. As per the recent update, The Department of Industrial Policy and Promotion (DIPP), after a push from the Prime Minister’s Office, is planning to allow FDI in retail e-commerce soon. How it’s going to impact your company?
There are pros and cons about FDI. The paper that is being prepared by the government is very well-written document, representing both sides. It is government’s job to make policies and it is our job to comply with that.
There are some small Indian companies of the opinion that the sector should be opened in phases. But there are several of them who think the FDI should be opened up. Whatever the government decides we will be okay with that.
WallStAnalyst: True that online platform services is a big business for you. But does that not dilute your brand, too? What if the seller on your platform sneaks in some sub-standard items? Is there a fool-proof plan to avoid such a situation?
I think the marketplace model doesn’t impact us. Dealing with third party sellers makes it a bit more challenging. But we have put a system and processes in place to control quality of products and services. Largely, the sellers don’t want to cheat customers, they want to serve them well. We are going to provide training to the sellers, so that they could give quality service to the customer. As a company that focuses on customer feedback, Flikart also exposes the sellers to customers’ criticism. The intent is there but they do not have the capability to fix those problems right now. We are working with the sellers to help them fix the problems.
WallStAnalyst: Why is that you call IPO an unnecessary evil and that you want to make use of private capital available to stay private for as long as possible, like Facebook?
I think, I never made any comment like that. We would love to become a public company. It would be a milestone for us. Right now, we are well capitalised so going public for raising funds won’t make sense. Yes, we want to go public in a few years of time but cannot give you a stipulated time frame for that.
WallStAnalyst: Tiger Global is the largest shareholder in the company that owns at least 40 percent of stakes and lot of other VCs have also invested in your company. What are the exit routes for existing and new investors?
See every investor we have got is a long-term investor. This has been our criterion from the beginning. In terms of exits, we plan to launch an IPO in a few years that should provide an exit to our existing investors.
WallStAnalyst: What is your future plan for a brand that you build from the scratch and where do want to see it in 2020?
I think 2020 is too far away. See, ecommerce will grow very fast. Will the ecommerce look the same as it looks today? Already, we are seeing ecommerce companies becoming m-commerce firms. At Flipkart, we are moving from an ecommerce company to an m-commerce platform. Will that be the only shift that we have to make in the coming years? I think there has to be multiple iterations. Six years from now, it is hard to imagine what we will be doing. We will be doing the same thing in the same space. What should remain constant is that our brand. It should remain simple and delightful for the customer.