What Sachin Bansal and Kunal Bahl can learn from Narendra Modi
Within the venture-funding community, there is shadow boxing over what these companies are really worth. In this business, talking down a rival is one way of talking down a valuation.columns Updated: Mar 28, 2016 19:45 IST
What happens when two of India’s storied Internet entrepreneurs exchange barbs on Twitter?
After Flipkart’s founder and CEO Sachin Bansal said this
Alibaba deciding to start operations directly shows how badly their Indian investments have done so far— Sachin Bansal (@_sachinbansal) March 25, 2016
Kunal Bahl, CEO of Alibaba-funded rival Snapdeal did not sit quiet. He replied :
Didn't Morgan Stanley just flush 5bn worth market cap in Flipkart down the 🚽? Focus on ur business not commentary :) https://t.co/8NpkhWWo2j— Kunal Bahl (@1kunalbahl) March 25, 2016
Now, think of the fact that this happened just one day after Holi, the festival on which you are supposed to forget rancour. Or better still, look at how Prime Minister Narendra Modi turned Holi into a grand affair by following on Twitter as many as 141 people, many of whom are his bitter critics and rivals. Delhi chief minister Arvind Kejriwal responded gracefully, and what looked like a good working relationship was born.
I am strangely reminded of a memorable dialogue line from Imtiaz Ali’s film last year, Tamasha: “Countries have become companies, and companies have become countries.”
Why would the young heads of two “unicorn” startups with valuations of more than one billion dollars be sparring so badly when they should be serving customers? Here’s why.
E-tailers are on a difficult wicket. Snapdeal and Flipkart are actually not online stores but online marketplaces, much like a mall building. Now, the worth of a mall is determined not so much by what is sold as the rent it can earn from those who open stores in it.
Both these companies are basically technology-driven platforms that offer some value-added services, but the money is in the platform business, in which new measurements are being used to value the companies. Problem is that these measures are not easily accepted in a larger world where the old-fashioned term called “profit” matters more. Cut-throat competition at the startup stage itself makes the business tougher.
Valuations are riding on “gross merchandise value” – a contentious metric similar to “footfalls” in malls. Real profit is not easy to track and eventually, venture-funded companies have to fall in line with the larger retail market for investors.
Within the venture-funding community, there is shadow boxing over what these companies are really worth. In this business, talking down a rival is one way of talking down a valuation. Sometimes, grapevine can be used to create rifts between investors and investees.
The spat between Bansal and Bahl comes in the wake of unsubstantiated reports that Flipkart has no interest in an initial public offer (IPO) of shares and may sell out to Amazon. So, are these gentlemen just fronting for two giants, one American and the other a Japanese Softbank-linked Chinese?
Bahl was taunting Bansal after Morgan Stanley’s marking down of Flipkart’s shares by 27%, bringing down the valuation of India’s largest e-commerce firm to $11 billion from an estimated $15.2 billion.
In the crazy game of startups, sometimes, investors are more important than customers. What Bahl and Bansal must be secretly worrying about is something like a “returns” policy on shares from early investors (something Flipkart is now offering customers) -- or a no-go from a future investor.
Now, that is a bit like Modi worrying more about coalition allies than voters. But Modi was smart enough to try and befriend Kejriwal.
Maybe Bahl and Bansal can have a drink together and agree that the idea of gross merchandise value is, well, gross.