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Funds continue to chase internet firms! Over $10 billion raised in 2019, see 17% y-o-y jump

Asmita Dey
Cheap data tariffs and a deluge of low-priced smartphones have empowered more customers to use services of technology companies.

India's Internet firms raised a little over $10 billion in 2019 helped by a chunky $4.41 billion in funding in the the October-December quarter, according to the data sourced from market research firm Tracxn. Total funds raised by the companies stood at $8.57 billion in 2018, the data showed.

Cheap data tariffs and a deluge of low-priced smartphones have empowered more customers to use services of technology companies. Over the past few years, a dozen companies have mushroomed across segments ranging from mobility to food delivery. According to a 2019 report by TIE-Zinnov, India has 21,155 start-ups across six cities. About 7,039 of the start-ups operated out of Delhi-NCR, followed by Bengaluru and Mumbai.

Given that the penetration of e-commerce in India is still at a nascent stage, investors believe there's a potential for growth and continue to infuse funds into the e-commerce companies. To put this in perspective, e-tail sales, which form the lion's share of e-commerce transactions, accounted for a mere 1.6% of total retail sales in India, according to a recent World Bank report.

Recent estimates by Deloitte estimate the retail industry to touch $1,200 billion by 2021.

The e-commerce industry is expected to reach a 7% share of the total retail market by 2021, they said.

Noida-based start-up Paytm raised the most in 2019 - a $1-billion cheque led by T Rowe Price in November that saw its valuation shoot up to $16 billion. The fintech firm is also raising Rs 4,724.42 crore in fresh funding led by Alipay, regulatory documents filed by the company showed.

SoftBank Vision Fund (SVF) led a $231.42-million (Rs 1,645-crore) funding in eyewear retailer Lenskart, taking its total fund tally to over $400 million. The Faridabad-based firm, which entered the coveted unicorn club last year, is estimated to have notched a post-money valuation of $1.5 billion post the latest financing round.

Oyo announced a fresh $1.5-billion funding round in October with founder Ritesh Agarwal pumping in $700 million of the total capital.

While logistics start-up Delhivery and online grocer BigBasket joined Lenskart to turn unicorns in 2019 with investments led by SoftBank and Mirae Asset, respectively, ed-tech start-up Byju's saw its valuation hit close to $6 billion on the back of a $150-million funding led by Qatar Investment Authority (QIA) in July.

Established companies are using the funds to make deeper inroads into tier-two cities and beyond, vast swathes of which remain untapped. In an interview to FE in November last year, Vikas Garg, CFO at Paytm, told the money will be used to "build financial services for common people, especially those who are left out from the formal financial services ecosystem". Food delivery firms like Swiggy and Zomato have started delivering in places like Siliguri, Tuni and Jamshedpur.

However, Internet firms may have to chase profitability rather than valuations as major global investors like SoftBank are treading cautiously post the WeWork debacle. In a recent interview to a local paper, Rajeev Misra, CEO of SoftBank Vision Fund, said the firm will recalibrate its strategy to focus on mid-stage growth companies which have positive top line. SoftBank backs a handful of Indian companies, including Oyo, Ola Cabs, Grofers and Paytm.

Losses are on the rise for bulk of the internet companies. Total losses for a clutch of e-commerce players - Grofers, Paytm, Oyo, Delhivery, Swiggy and Zomato - rose to Rs 11,489.48 crore in FY19 compared to losses of Rs 3,257.04 in FY18, an increase of 252.75%.

To turn profitable, the companies are adopting two strategies - moving to private labels that make them less dependent on large suppliers and passing on the burden of discounts to brands, analysts said.

For instance, Grofers which was earlier a pure hyperlocal and shifted to becoming an online grocer with an inventory-led model, is banking on private labels in the fast moving consumer goods (FMCG) segment to drive its second phase of growth. Close to 90% of Grofers' users are already using the company's private-label brands, the firm said. The company said it achieved break-even in Delhi-NCR and Kolkata.