Flipkart in talks to raise $3 bn from marquee investors at $35-bn valuation

The funding -- from SoftBank, Abu Dhabi's ADQ, CPPIB -- is expected to set the stage for Flipkart's IPO in the US by next year and increase its valuation to about $50 bn, say sources

Walmart-owned e-commerce giant Flipkart is eyeing a $50-billion valuation through its initial public offering (IPO) in the US by next year. This would be the biggest IPO in the consumer tech space in India.

To create an interim event and set the stage, the Bengaluru-based firm is in talks with investors such as Japan’s SoftBank and Sovereign wealth funds like Abu Dhabi’s ADQ and Canada Pension Plan Investment Board (CPPIB) to raise total funding of about $3 billion, according to sources. People in the know said that existing investors such as GIC and Qatar Investment Authority may also participate. The investment may take the valuation of Flipkart to about $30 billion- $35 billion.

Masayoshi Son-led SoftBank is in talks with Flipkart to invest over $500 million in the e-commerce firm. SoftBank is looking to invest in Flipkart, three years after it sold its entire stake in the company to Walmart Inc, the world’s largest retailer. Before its exit in 2018, SoftBank had earlier invested $2.5 billion in Flipkart. Anther investor, ADQ, is a close ally of SoftBank and has been investing in its portfolio companies. It might invest $500 million and CPPIB may put in about $800 million. Another $1 billion might come from existing investors such as QIA and GIC. However, those decisions have not been taken yet.

“The allocation of funds or how much each investor would invest is expected to happen in the next two weeks,” said a person with direct knowledge about the deal. 

Last July, Walmart led a $1.2-billion round in Flipkart, valuing the e-commerce firm at $24.9 billion. The Bentonville-based company (in Arkansas) is locked in a battle with US rival Jeff Bezos-led Amazon and Mukesh Ambani-owned Reliance’s JioMart for dominance in India’s online retail market through Flipkart, which it bought for $16 billion in 2018, valuing it at $21 billion.

SoftBank declined to comment on this development and an email sent to Flipkart remained unanswered.

Industry executives said that the funding would not have any kind of negative impact on Flipkart’s plans to go public in the US by 2022. They said it would in fact set the stage for Flipkart’s initial public offering (IPO) and increase its valuation to about $50 billion. Before this funding deal, sources said Flipkart was eyeing a valuation of about $40 billion for the IPO. People in the know said Flipkart is expected to file Form S-1 this year. It is an SEC filing used by companies planning on going public to register their securities with the US Securities and Exchange Commission (SEC).

“The funding creates an interim event and sets the floor price for Flipkart’s IPO valuation,” said an industry executive familiar with the matter. “This is not only a strategic move from Flipkart’s perspective for continuous growth investments but it would also help the firm to do the biggest IPO in the consumer tech space from India.”

Investment bankers say that Walmart could be testing the waters with the SoftBank deal before the IPO. Arvind Singhal, chairman at consulting firm Technopak Advisors, said the decision (for the IPO) will be based on Walmart’s shareholders and investors view in the USA, and not on Flipkart's need for further infusion of funds. 

Madhur Singhal, managing partner and CEO at management consulting firm Praxis Global Alliance, said raising pre-IPO private funding is common practice. It insulates firms from the impact, if the IPO gets delayed for whatever reason, and also helps set the valuation.

“It becomes confidence building for retail investors and institutional investors to subscribe to the IPO,” said Singhal.

However, Singhal of Praxis said the e-commerce business continues to take capital to grow. “Though the discounts have come down and growth has picked up again, the bottom line is that some of these scale businesses are still not profitable,” said Singhal. “They are trying to take a greater share of the customer’s mind and wallet and continue to grow into new services and business models. This needs capital irrespective of when the IPO will happen.”

Indeed, the funding may also help Flipkart compete with players such as Amazon, Reliance’s JioMart, and Tata Group, which are also betting big on e-commerce and making acquisitions and forming strategic partnerships. Reliance’s Jio Platforms has raised billions of dollars from investors including Facebook and private equity firms such as Silver Lake and KKR.

Tata Sons has announced the acquisition of e-grocery firm BigBasket. Cementing its foray into the online grocery market, Tata Sons, through its subsidiary Tata Digital, has acquired a majority stake in BigBasket at a $2 billion valuation.

Flipkart’s rival Amazon has so far committed over $6.5 billion to the India market. It has been scaling up its investments in the country at a time when the Seattle-headquartered firm had signed off from China.

“Earlier we had seen that Flipkart was competing with Amazon. Now Reliance and Tata are also getting aggressive in the e-commerce space,” said Singhal of Praxis. “The battle to tap the digital economy is not going to slow down anytime soon. We expect them to get much more aggressive than what we are seeing right now."

Only 7 per cent of the $1.2-trillion retail market is online, and all these players are aggressively eyeing the remaining 93 per cent, according to analysts. The market opportunities for online commerce in the country are also expected to touch $200 billion by 2028 from $30 billion in 2018. Also, India’s e-commerce market is expected to grow dramatically as a result of the coronavirus pandemic.

Flipkart itself is eyeing strategic stakes in multiple small, regional as well large retailers in India as it looks to tap the offline retail opportunity in the country. It is in a race with rivals Amazon and Reliance’s JioMart, who are also following a similar strategy and are in talks with multiple Indian offline retailers to buy strategic stakes.

For instance, last year Flipkart Group and Aditya Birla Fashion and Retail Limited (ABFRL) formed a new strategic partnership aimed at enhancing the consumer fashion experience. Flipkart made an investment of Rs 1,500 crore in ABFRL. Last year, Flipkart Group also bought a significant minority stake in retailer Arvind Fashions’ (AFL) subsidiary Arvind Youth Brands.

Flipkart is also enhancing consumer experiences through strategic stakes or acquisitions of tech startups. Last November, Flipkart acquired Scapic, an Augmented Reality company (AR), to enhance its e-commerce shopping experience capabilities. Last year, it also strengthened its gaming strategy through the acquisition of intellectual property (IP) from Mech Mocha, a mobile gaming start-up. Flipkart and its parent Walmart also made a fresh round of investment in Ninjacart that connects farmers with kiranas and businesses using technology. In April this year, Flipkart announced its proposed acquisition of Cleartrip, a leading online travel technology company.

SoftBank is investing in Flipkart again, at a time when the startup ecosystem is booming in the country. According to the sources, SoftBank could invest over $4 billion in India this year in the technology sector. These include edtech, healthtech, e-commerce, B2B marketplaces and software-as-a-service (SaaS). The investments will come from SoftBank's Vision Fund 2. It has an investment outlay of up to $30 billion for this year.

SoftBank Vision Fund 2 has made big bets in India this year. It is in the advanced stages of talks to invest up to $500 million in food delivery giant Swiggy. Last month, banking technology start-up Zeta became the latest entrant to the unicorn club after raising $250 million in its Series C round from SoftBank Vision Fund 2. Also, it has been reported that OFB Tech, which runs the OfBusiness business-to-business marketplace, is in advanced talks to raise $150 million from SoftBank.