Social e-com firm Meesho eyes $500-mn war chest; funds to be used for M&As

Mandates Morgan Stanley to find lead investor; funds to be used for M&As

Social e-commerce player Meesho has mandated Morgan Stanley to identify a lead investor for a fresh round of funding which will be used primarily to build up a war chest for acquisitions.

Talks are already on with potential sellers, according to sources aware of the developments.   

The size of the fund raise may be around $500 million. Meesho’s investors expect the funding to push the valuation of the company to $5-7 billion from the current valuation of $ 4.9 billion.

In its last fundraise, Meesho raised $600 million in September 2021. It has marquee investors which include SoftBank, Facebook, Fidelity as its backers.  Sources say that Meesho’s founders and investors believe it is time to look at raising more money.

The conflict has created challenges for small and growth start-ups to get fresh funding from venture capitalists and private equity  players. The fresh funds will provide an opportunity for Meesho to look at acquisitions to expand its business faster and get attractive deals. 

Meesho declined to comment.   

Those in the know say that the company has around $1.2 billion of capital on its  balance sheet as it has used only a fraction of what it raised in earlier raises.

Consequently, it has enough money to fund growth (it has grown the business four times last year) as well as burn cash for the next 12 months or more.

These sources say Meesho has a cash burn of around $30 million a month which is expected to come down with the increasing scale of business. The target is to become cash flow positive in 12 months.

Sources in the know point out that Meesho has not changed its business monetisation model at all; it is still based on sellers on the platform advertising their products on Meesho to attract buyers. 

According to estimates, out of 100 sellers currently, at least 15-16 advertise their products, which is the key source of revenue. Earlier, many had expressed doubts whether such a disruptive e-commerce model could work for small scale businesses.

Meesho’s co-founder and CEO Vidit Aatrey told Business Standard in an interview that the platform is already available in 98 per cent of all pin codes. Its focus, he said, is on below Tier 1 companies and it is aiming to hit 100 million monthly active users on its platform by December.

A striking feature is that 50 per cent of Meesho’s customers are first time users online.

The company has expanded its product profile in the last nine months to include sportwear, pet foods, and products for men and more recently to make an entry into groceries.