The Flipkart saga: VC in driver’s seat part-1

Who thought that there will be a day when a relatively young company (started in 2007) called Flipkart could dwarf big companies like Nestle India, Dabur India, Godrej Consumer etc. in terms of company valuation based on market cap. As per many media news in 2015, Flipkart was valued at around $15.2 Bil. However, current reality is strikingly different. Investors like Morgan Stanley and other have done consistent mark down on the valuation of the Flipkart during the year of 2016.The latest valuation of Flipkart may be around $5.54Bil, which is around third of what it was valued in year 2015.Though this kind of gyration in the valuation figures for start-ups/young companies is nothing unusual but after such drastic mark down on valuation when announcement came that Tiger Global the largest investor (owns around 35% in Flipkart) appointed Mr. Kalyan Krishnamurthy as CEO of Flipkart, it has sent some strong signals.

Let me try to do quick analysis of this announcement in two parts;

Part-1: its’ impact on the Flipkart.

Part-2: Its’ impact on other start-up companies and on start-up ecosystem in India.

Impact on Flipkart :

Move over from founder to the professional:  

Flipkart the e-commerce market leader in India is going to witness for the first time the change which comes from the professional (Mr. Krishnamurthy) managing company as compared to the co-founders ( Bansals) managing the company. This may lead to for sure some organizational cultural and hierarchical rejig. Instead of focusing on vision, mission, higher level strategies and some larger than life goals (which are generally propagated by founders to all the stake holders) the focus may shift to growth drivers, sales, cost control, loss reduction, efficiency, execution etc. Companies are reflectors of their leader’s personality, attitude, approach etc. and Flipkart is no exception to this. Many key positions roles may face restructuring, some may be shown the door and new recruitments may find the way in. I think the key slogan at the Flipkart after the change of leadership is going to be “we mean business”.

More focus on sustainable turn around:

I think the job of Mr. Krishnamurthy as new CEO of Flipkart, will be cut out to maintain market leader position in the India along with sustainable turn around where focus will be on sales and bringing firm into profit. In this case, it seems sustainable turn around and scaling up of business is going to be two very important ingredients for future higher valuation. Lee Fixel who is Tiger Global head of PE & VC operations would eventually be interested in selling his stake in Flipkart at some eye-popping valuation figure and pocketing the exorbitant profit. In order to fulfill Lee Fixel’s dream Flipkart first has to reach such a high valuation figure. To reach high valuation number Flipkart has to allure and attract equity investors to invest in the company at higher marked-up valuation which will be cyclical and lead to further higher valuation of the firm. But to convince new equity investors to invest in Flipkart is going to be anything but easy from now on. Assuming new equity investors will be more critical evaluators of Flipkart after it has gone through rough patches before making further investment, Flipkart has to prove under new CEO that it is sustainable turnaround story in the largest market, where focus is not only on sales but also on profitability. This is what new CEO’s role might be at Flipkart. If this does not go right, it can spook the idea of bringing IPO at high valuation in future which generally works as exit gate for many VC investors. 

The above flow is represented diagrammatically as below;