Flipkart co-founders cash in their chips to clinch a deal

The stakes of the Flipkart co-founders are now at a bare minimum after the new round of funding of $1.4 billion which gives them very less clout at the board level.

The last time the company got funded, in July 2015 for $700 million, the valuation was at about $15 billion, which gave Sachin Bansal and Binny Bansal about 9 per cent stake of about $1.35 billion each. According to sources, their stake after the new funding, has come down to about 5 per cent. This means their wealth is worth about $580 million each on the current valuation of $11.6 billion.

But what is worth noting here is, with the Snapdeal merger likely to happen within the next few weeks, the Bansals, who are classified as common stockholders and have very less preferred stocks, will be the last to get paid, compared with the investors who are classified as preferred shareholders. The Bansals’ preferred stocks have come down over a period of time because of frequent rounds of funding (11 so far).

The Bansals’ stake could come down further in case Snapdeal gets merged with Flipkart as SoftBank is expected to invest about $1.5 billion into the merged entity. This could be the last round of funding Flipkart might receive before the run up to the IPO, which is expected to happen sometime next year.

“The Bansals do not have much of controlling power over taking decisions for the company. It is now pretty much run by the investors who are preferred stock holders,” Avinash Hiremath, an M&A consultant and former co-founder of an e-commerce company, told BusinessLine.

He said in case of a sell-off, it is the preferred stock holders who will make cash first; then if something is left, the founders will get a part of that. Secondly, the dividends of preferred stocks are different from and generally greater than those of common stock.

Meanwhile, in an internal email to Flipkart employees, Binny Bansal said the new round of funding will ensure the company is nearer to its goal of transforming commerce in India through technology. Therefore, it is all the more important to be careful about keeping a close watch on costs, he pointed out.

He said the latest round of funding will provide solid growth capital to cement and extend the company’s lead in India’s e-commerce market. “…and our valuation remains healthy and in double-digits, reflective of the current business and the global economy.”

Binny said the potential is vast and it has only just scratched the surface. E-commerce accounts for less than 2 per cent of all retail in India and the potential for online retail alone is about $100 billion.

This deal brings in a lot more than funds, Binny added.

“They set us up to compete more aggressively through innovations. We can now collaborate deeply with eBay on cross-border trade and ensure our customers have a wider selection of international products to choose from. Tencent, one of the largest internet companies in the world, and Microsoft also join us as strategic investors.”