AS 2009 DAWNED, the world found itself drowning in a post-Lehman Brothers era. The financial markets had collapsed, banks had stopped lending and businesses of all kinds were cutting jobs and curtailing investments. India would recover quickly from the recession, but at that time the economic environment looked dire.
Inside Flipkart, however, things were better than ever. Yet, funding remained elusive. The financial crisis rendered e-commerce ventures even less appealing to the venture capitalists. In that bleak climate, only the safest of investments were entertained.
Previously a proprietorship, Flipkart incorporated itself as a limited liability company in October 2008. This newly registered entity was called Flipkart Online Services Private Limited.1 By the end of 2008, Erasmic Venture, the funding company Abhishek Goyal worked for, was showing serious interest in Flipkart. Erasmic had recently been bought by Accel Partners, an elite venture capital firm headquartered in the Silicon Valley. Erasmic would be renamed Accel Partners India but allowed to retain its team.
Accel was unlike most other venture capital firms in India. To begin with, the fund invested in very young startups. Other funds at that time had adopted the models of their prototypes in the US. The ones in India had raised large amounts of capital, anywhere between $150 million to $200 million, and they looked for relatively mature startups that could absorb a cheque of $5 million to $10 million. But the paradox was that such companies were extremely rare. Most startups were young and needed capital to take off, but most funds were unwilling to invest in these ventures. The venture lords would take several years to realize that the US model wouldn’t work in India, ironic for a community that criticized many local startups for being copycats of American companies. Accel was one of the few funds that backed very young companies. The partners at Accel were also generally more friendly and considerate towards entrepreneurs. What also set Accel apart was the kind of startups it invested in; its portfolio largely comprised internet and software companies, whereas most other funds preferred traditional businesses, making room for only a handful of internet firms. One well-known VC even declared that the ‘internet is dead in India’. Accel, whose partners had previously worked at software firms, had funded companies like Chakpak, the software firm Mu Sigma, the travel portal HolidayIQ, and Myntra, a gift-selling website.
But when it came to e-commerce, even the partners at Accel had serious doubts. For nearly a year, Abhishek had tried to persuade his colleagues Subrata Mitra and Prashanth Prakash to invest in Flipkart. They had felt impressed by the Bansals, but their conviction about the futility of e-commerce could not be shaken. It was, in turn, strengthened as they considered the example of eBay. The American online marketplace, which was regarded as one of the more wisely run internet companies, had bought the Indian e-commerce startup Bazee in 2004. Five years since, eBay had failed to make its mark in India.
The partners at Accel had long debates regarding India’s ability to sustain large internet businesses. Many firms were trying but not one offered hope. Of all niches, e-commerce seemed to have the bleakest prospects. It required huge quantities of cash, but who would supply so much capital in India? Then there was the immense problem of operations. Even eBay was struggling in that respect. These were all sensible arguments against investing in an e-commerce startup. But there were still many more. Accel had even begun to have doubts about its own strategy of betting on internet startups. Many of the internet companies in Accel’s portfolio, including HolidayIQ and Myntra, were growing slowly. Chakpak was popular with users but its revenues were meagre. Most funds were investing sparingly in internet startups. Only a few search engines, travel sites and social networks received funding. Accel already had significant internet holdings; it seemed too risky to add an e-commerce venture.
But Abhishek kept prodding his superiors. His thesis was simple: if people are funding the Googles and Facebooks of India, why not fund the Amazon of India? Obviously, that didn’t convince his bosses at Accel.
Yet again, the Bansals’ resilience in the face of such resistance was remarkable. Despite being turned down by every fund they had approached, the Bansals took the rejections in their stride. After so many months of discussions, they were understandably desperate, but they did not let it derail their objective of building a high-quality e-commerce site.
It wasn’t just Abhishek who wanted Accel to invest in Flipkart. Gaurav Kushwaha of Chakpak had also pushed Flipkart’s case with Subrata and Prashanth, the two leading partners at Accel. Even Mukesh Bansal, co-founder of Myntra, had spoken highly of Flipkart. At one point, Abhishek and Gaurav separately considered financing Flipkart with their personal cash. In spring 2009, Abhishek told his superiors that he wished to invest in Flipkart out of pocket. At this, Subrata and Prashanth finally gave in. ‘We’d rather put [in] a bit more and do it from the fund.’
Thus, in the end, all logic was defeated. This is how many deals are struck, as feelings, intuition, persistence and luck come together to influence a decision. ‘Exact math doesn’t work. If you did a lot of math you wouldn’t end up doing any investment because almost always there’s nothing at the start,’ reasons Abhishek.
In the summer of 2009, Accel agreed to invest $1 million in tranches into Flipkart. Accel was to have a twenty-five per cent stake in the company. It was a raw deal for the Bansals. But in that moment, after being rejected for more than a
