SoftBank in talks to back Snapdeal with USD 100 million in ice thawing move

If the deal goes through Snapdeal might just get the push it needs to regain the much coveted unicorn status

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Indian online marketplace Snapdeal—touted to be the ‘comeback kid’ after going through a rough patch—is in advance talks with SoftBank to raise USD 100 million, sources close to both the parties told Moneycontrol.

This is a significant development since the relationship between Snapdeal and SoftBank had gone sour two summers ago when the latter tried to sell the erstwhile unicorn to its archrival Flipkart.

According to the sources, SoftBank might lead the deal with USD 60 million investment, while the remaining amount will come from a host of smaller Chinese and American investors who are also interested in participating in this round.

Incidentally, SoftBank has invested in Flipkart, Ola, OYO, Paytm, and Grofers—all unicorns—amongst a dozen other Indian startups through its USd 100 billion Vision Fund.

In July this year, the Gurugram-based company had raised an undisclosed amount of funding from Anand Piramal, executive director at Piramal Group, who invested in Snapdeal in his personal capacity.

Owing to the mounting losses two years ago Snapdeal had to downsize its staff and cut cost. It sold all its non-core subsidiaries including its logistics arm Vulcan Express, inventory management provider Unicommerce, and payment company FreeCharge. Snapdeal sold FreeCharge to an Indian bank at nearly 90% discount in 2017.

In a blog, its co-founder Kunal Bahl had then reminisced, “The FreeCharge sale was an important part of Snapdeal 2.0 and without that capital, our survival as a company would have been at risk.” He said Snapdeal is now the only horizontal e-commerce company at scale left in India that is independent and not owned or operated by a large multinational corporation.

In its bid to survive the debacle, Snapdeal changed its strategy by putting a stop on deep discounting, pushing unbranded products on its platform, and focusing on value-conscious buyers, mostly from tier 2 and 3 cities. Since the focus shift, more than 80% of its users come from smaller towns.

In the financial year 2018-19, Snapdeal said its revenue went up by 73% to USD 129 million, and managed to cut down on losses by 70% to the tune of USD 26 million.

Snapdeal’s revival can be attributed to multiple factors such as deteriorating performance of its competitors Shopclues and Paytm Mall, and rise in Internet penetration due to dirt cheap data by telecom operator Reliance Jio. The 4G revolution also unlocked the next 100 million Internet users in India who do not speak English.

Though Flipkart and Amazon have a combined 75% market share in the e-commerce space, Snapdeal hopes for a third significant spot. However, it will have to counter the game changing entry of Reliance in the online retailing world sooner or later.

Online shopping is hugely under-penetrated in India. According to Morgan Stanley, in the 60-billion-dollar organized retail market in India, e-commerce contributes just 2% of total retail sales.