Excl: Japanese internet company, Junglee founders join eBay in $50M Snapdeal investment

8 Apr, 2013

Screen Shot 2013-04-08 at 10.22.38 PMA large Japanese internet and media conglomerate and Junglee founders Venky Harinarayan and Anand Rajaraman have taken part in the latest $50 million round in Jasper Infotech Pvt Ltd, along with online auction and shopping marketplace eBay Inc., sources told Techcircle. Jasper Infotech owns and operates the online marketplace Snapdeal.com.

The existing investors in the e-commerce company - Bessemer Venture partners, Nexus Capital, Indo-US venture Partners - have also participated in this round of capital raise. Kunal Bahl, CEO, Snapdeal, declined to comment.

The identity of the Japanese investor could not be ascertained at the time of publishing the article. Masayoshi Son-backed Softbank has been active in India with investments in companies like InMobi. Last year, the Japanese internet giant had invested $200 million in the Bangalore-based mobile advertising firm. The other large Japanese internet companies are online shopping mall Rakuten, and online price comparison site Kakaku.com.

The investment from Harinarayan and Rajaraman are also significant as both had helped create Amazon's third party marketplace. The duo, who earned their PhD in computer science from Stanford University in 1996, had co-founded shopping comparison site Junglee.com and sold it to Amazon for $250 million in 1998. In 2005, they had also co-founded Kosmix, a social media search engine, which was acquired by WalMart in 2011.

The new set of investors are likely to give Snapdeal a big confidence boost in the shaky e-commerce environment in India. Snapdeal has pioneered marketplace e-commerce model in India, and now a lot of the inventory-based e-commerce companies are also venturing into marketplace as that is more cost-efficient and offers high margins.

New shareholders

What is also interesting is that eBay gets only single digit percentage ownership in lieu of the capital invested without a board representation and will also not have any veto rights, at least two sources in the direct knowledge of the development told VCCircle. That is significant as eBay is also a competitor to Snapdeal, and could potentially influence Snapdeal's future strategies. eBay's investment in Snapdeal is in line with formers' strategy of ramping up its presence in BRIC markets. In its latest analyst call, the company asserted that it means to grow total active users in BRIC and emerging markets to 6.5 times its current levels over the next three years.

Ebay holds up to 19.5% of MercadoLibrem, Latin America's number-one e-commerce site. eBay, which entered India after acquiring an existing online site Bazee.com, has now invested in Snapdeal to use it as a vehicle to hasten its growth in the region and complement its organic efforts. While eBay India currently has 5 million users, Snapdeal claims to be the largest online marketplace in the country with over 18 million members and says it is adding one million new subscribers per month.

Snapdeal has raised about $103 million in three rounds so far. In July 2011, Snapdeal had raised $39.5 million in Series B funding, led by Bessemer Venture Partners, along with existing investors Nexus Venture Partners and Indo-US Venture Partners. That investment happened barely six months after the company announced fundraising of $12 million from Nexus and Indo-US Venture Partners.

Recently, in an exclusive interview with Techcircle.in, Kunal Bahl, founder of Snapdeal, had mentioned that the company expected to do annual Gross Merchandise Volume (GMV) of $300 million this fiscal, and was aiming to achieve $1 billion in GMV by 2015.

The current investment in Snapdeal comes at a time when the general sentiment about the e-commerce industry is negative as the companies are burning more money than they are making. "The Indian e-commerce industry is going through a phase of deep-cut," said an industry expert. Also the e-commerce companies are still figuring out what model (inventory or marketplace) works best in Indian context, and the jury is still out on that.

Snapdeal is first of those VC-backed companies that has managed to get a strategic investor on board. "Raising money from a strategic investor is a far bigger validation of the model as their due-diligence processes are extremely stringent and extensive," added an investor. Though, eBay has bought in Snapdeal, it is very likely that the company would go for an IPO as an ideal liquidity option for its investors, a source briefed with the matter added.

(Edited by Prem Udayabhanu)