At least 70% of companies will fail in e-commerce: Vani Kola of Kalaari Capital
e-commerce as a sector has been facing a lot of challenges. Over the past year many companies have been acquired or shut shop altogether. Two companies, Seventymm and Indiaplaza, have fallen prey to this trend as they have been unable to raise further funds. Seventymm had earlier pivoted from an online DVD rental company to become a pure e-commerce site while Indiaplaza is one of the oldest e-commerce companies in the country. Both sites are still active though they are close to being shut down. Another common string for them is that they are backed by Kalaari Capital (formerly known as Indo-US Venture Partners).
Kalaari has a fair share of e-commerce investments in its portfolio—companies like lingerie e-tailer Zivame, online furniture seller Urbanladder, online babycare products shop Hushbabies, Snapdeal and Myntra. In a chat with Techcircle.in, Vani Kola, managing director of Kalaari Capital, talks about what went wrong with Seventymm and Indiaplaza and her views on the e-commerce sector; she also provides advice for e-commerce entrepreneurs to help them tide over the fund crisis.
Seventymm, Indiaplaza and funding landscape
"The challenges for both the companies were that they really weren't able to execute the right economics from the business metrics point of view. They were unable to raise further funding," said Kola.
She said funding sources, especially for e-commerce, are very limited in India. As companies progress from one stage of investing to another, the sources of capital will keep shrinking and unless the company has phenomenal growth, finding investors is going to be a problem.
"Keeping in mind this scenario, I expect at least 70 per cent of firms across the board to fail in e-commerce," Kola said.
According to Kola, the recent consolidations in e-commerce space is just part of a phase that any sector goes through. "Most mergers are happening for combining access to capital; second is strategic alignment. These will continue to happen as we move forward," she said.
Advice to entrepreneurs
"Companies that rapidly grow have options that open up to them whether it is somebody buying them or raising funds. When you are not growing at a rapid pace and are just maintaining a steady state, you won't get any interesting exit options," she said.
Kola said entrepreneurs need to be proactive and they should have in mind the parameters and milestones needed for the next round of funding even as they raise a certain round of funding.
"And you need to deliver on those milestones," she said. She said entrepreneurs need to keep in mind that sources of funds are limited; they need to keep thinking about this till the company reaches profitability.
"Lastly, you have to separate something about your business which is unique; otherwise you are just running a commodity business," Kola stated.
(Edited by Joby Puthuparampil Johnson)