9
BOOM
By early 2011, about a year after Tiger Global had invested in Flipkart, the e-commerce market was in a frenzy.
Tiger Global’s investment in Flipkart had changed the rules of the venture capital world. Over the next two years, Lee Fixel financed more than half a dozen e-commerce companies. Later, many founders would come to look at Lee warily because of his outsized influence in the startup world and his openly ruthless approach to portfolio companies. But his aggressive investments in his early years as a venture capitalist paradoxically moved the needle towards founders in the power equation with investors. It also shaped the startup ecosystem into a high-risk, winners-take-all business.
Venture capitalists in India had been deeply pessimistic about internet startups, writing cheques to these companies sparingly. It was the Flipkart deal that forced them to loosen up. It is a well-known fact that investors display herd behaviour, especially during the extreme cycles of boom and bust. In 2010 and 2011, following the lead of Tiger Global and Flipkart, investors and entrepreneurs moved like hyenas into e-commerce. This pattern would repeat again during subsequent boom-and-bust periods, and always with Tiger Global–Flipkart as the trendsetters.
The same venture capital pantheon that had pronounced e-commerce dead on arrival now flipped, and investments into internet startups began to soar.1 Most of this money went to online retail companies, which sprang up by the dozen in Bangalore, Delhi and Bombay. A majority of these firms raised very little cash. But there was no doubt that e-commerce had become a seasonal favourite. EBay, which had been quietly present in India since 2004, arose from its slumber and began spending freely. Kishore Biyani, CEO of Future Group, bought Chaupaati Bazaar, a phone and online commerce company. The founders of FabMart, an online retailer that was born of the first internet boom in the late nineties, made a comeback with a new e-commerce startup called BigBasket. Many others like Myntra, Letsbuy, Snapdeal, Homeshop18, Naaptol and Shopclues were either founded or received significant funding in this period. Even Indiaplaza, that e-commerce dinosaur which had wobbled along since 2000, received $5 million in 2011. The hysterical activity in e-commerce drew comparisons with the great dotcom bubble.2
There was some logic behind this frenzy. By September 2010, there were still only ten million broadband connections in India.3 It was the dizzying growth in mobile phone usage that caught one’s attention instead. The popularity of the iPhone, introduced in 2007, prompted predictions that internet browsing would increasingly shift to smartphones. As other phone manufacturers produced a spate of iPhone rivals, internet use on mobiles increased rapidly. Some eighteen million new mobile connections were being purchased every month. This vast base of mobile phone users would soon have access to 3G services, which could lead to widespread mobile internet consumption. The Boston Consulting Group estimated that India would have 237 million internet users by 2015, an astounding increase from 2009’s eighty-one million. For e-commerce firms, this prediction came like a beacon. In 2010, most people used the internet for email, messaging and casual browsing; it was estimated that less than ten per cent of internet users bought products online.4 This gap was bound to close with faster internet connections – all one had to do was offer a reliable e-commerce service and the market would multiply.
AT THE AMAZON headquarters in Seattle, Jeff Bezos was excited by the burst of e-commerce activity in India. Amazon had set ambitious targets for its international business. But there weren’t many countries that could satiate its appetite for growth. In China, Amazon was floundering. Now India looked like an obvious new avenue. For the last several years, its strengthening economy had been drawing global attention. Indians were eagerly taking to the internet, and Amazon wasn’t unfamiliar with the country’s booming tech scene. Although the company had discarded its plan to launch its India operations in 2006, it had continued to expand its office here as a support centre for its US headquarters. The time had now come to revisit the retail space. Just as it had done in 2004–05, Amazon first considered the acquisition of a local company. In early 2011, Amazon officials approached Flipkart, which had become the most prominent e-commerce brand in India’s rapidly developing market.
The Amazon officials who were in charge of international expansion for the company, were led by Amit Agarwal. Amit had previously headed the company’s India office. In late 2007, around the time the Bansals had started Flipkart, Amit had moved back to Seattle to take up the role of technical advisor to Jeff Bezos. This was a coveted position as it gave the chosen employee access to the Amazon founder and his singular mind. Amit impressed Bezos enough to be rewarded with a promotion in 2009 – the IIT Kanpur graduate would soon lead Amazon’s international expansion.
When Amazon approached Flipkart in early 2011, the latter’s business was on a tear. The Bansals were convinced that Flipkart would become a huge company over the next few years. They were discovering their entrepreneurial prowess, like gifted sportsmen discovering their talent. They were in no mood to sell. Lee Fixel, the company’s most influential investor, didn’t think they should either. Flipkart’s growth had taken him by surprise. It had become his most promising bet, a potentially career-defining investment – an investor’s dream. It made little sense to cash in so early.
Sachin and Binny decided that they would ask for an outlandish valuation to which they knew Amazon would never agree. They would not be cowed down the way they had been with Infibeam. This time, they would direct the discussions.
The teams met at the plush ITC Maurya hotel in central Delhi. Sachin made his terms clear to Amit, his former boss: Flipkart would agree to a deal only if the company would be valued at $1 billion. This was truly an outrageous demand. Here was a company that had
