Venture capital firms poured in $2.256 billion (Rs. 14,428 crores) in Indian startups last year. Much of that went into e-commerce companies such as Flipkart, Snapdeal and Jabong, and none of them are close to profitability.
Now Snapdeal, one of India's largest online retailers, has laid out a timeline for future profits. Founder and chief executive Kunal Bahl said yesterday in Hong Kong that his company, which raised $627 million in its last round led by Japan's Softbank, will be profitable in 2-3 years.
“We are building the highways of commerce, investing tremendously in technology,” Bahl said in a Wall Street Journal report. “Just scale will not bring profits, sustainable capabilities will bring tremendous profits.”
Huge investments in e-commerce startups has raised concerns that such firms might be overvalued, as they incur big losses in trying to lure buyers with hefty discounts.
“You have to have a measured approach. You can’t just blow a bunch of money, because everyone says infrastructure doesn’t exist in India,” Mr. Bahl said.
Snapdeal has employed funds to acquire companies such as Freecharge to boost its reach in the fast-growing mobile transactions business. It has also built 1 million square feet of warehouse space in the last six months, and bought a stake in a logistics company. With such spending, investors would at some point wonder when will profits start flowing.
For now, venture funds don't mind the cash burn. "Investors are actually telling entrepreneurs to move faster. If that means a little bit of capital burn, that’s encouraged by investors," said Prashanth Prakash, a partner at venture capital firm Accel India.