For Helion, e-commerce party has just begun

VC firm looks to invest in specialised firms that aren't in a 'rush to grow'

As an investor, the two exits his company made in the e-commerce space haven't been very successful. As a consumer, he doesn't believe in buying more than a certain number of trousers, nor shoes beyond a certain price point. Yet, when asked if he would continue to invest in e-commerce companies, Ashish Gupta, senior managing director of venture capital (VC) firm Helion Venture Partners, emphatically replies, "Yes."

"Indians are going to buy junk. We started late. But that doesn't mean we would not buy it. We are going to become more and more irresponsible with our money and with the environment - there are no twos about it. But doing physical commerce in this country is near impossible due to the rising real estate costs. So, the only way to serve the people is through e-commerce," says Gupta, who, in 2006, co-founded Helion Venture Partners along with three other partners. "I believe there is no alternative to e-commerce becoming a very interesting business in this country," he adds.

So far, Helion has invested in six Indian companies in the e-commerce space - LetsBuy, Exclusively.in, Fashionara, Yepme, Hoopos and ShopClues. In 2010, Helion had recorded a successful exit from MakeMyTrip (with returns at 10 times the investment). It had also exited Red Bus. In its e-commerce portfolio, it has exited two companies - LetsBuy, which was sold to Flipkart in February 2012, and Exclusively.in, which was acquired by Myntra last year. Industry insiders say Helion's gains from these investments were negligible. They add most e-commerce companies in India are bleeding, partly because of their attempts to attract more customers with discount offers and free door-step deliveries. Increasing warehousing costs have also taken a toll. Now, the industry is heading for consolidation; the recent merger of fashion retail sites Zovi and Inkfruit is an example.

However, Gupta says the first phase has been an excellent learning experience for the industry. This, he adds, would result in companies rationalising their operations. "The process of rationalisation has already started in this industry. Free shipping has come down. A lot of companies have moved to a minimum order of Rs 800 for free shipping. You might soon see this rising to Rs 1,500. You are also seeing the number of price discounts coming down," he says.

While change is "written on the wall", Helion wouldn't focus on investing in e-commerce companies that offer a slew of products, he says. It would prefer investing in horizontal players with specific e-commerce categories. Helion has already invested in three companies that sell clothing in specialised segments.

Within the e-commerce segment, Helion would consider investing in companies that demonstrate an ability to manage their cash well, companies that aren't in a rush to grow at any cost. "We are very clear that the companies we plan to invest in should be good in their unit economics. That means they should be able to make money on every order, as opposed to losing money on every order," he says, adding, "E-commerce is a very good opportunity for those who have the ability to build their business patiently."

An alumnus of Indian Institute of Technology-Kanpur, Gupta secured a doctorate in computer science from Stanford. After brief stints at IBM Research and Oracle Corporation, he, along with four others, formed Junglee.com, which provided database technology that helped consumers find products on the internet. In 1998, the company was sold to Amazon for about $230 million.

So far, Helion has invested in about 48 companies globally. From its third fund, which has a corpus of about $250 million, it has invested in ShopClues, LifeCell and Seclora Technology. It is planning to invest in 20-25 additional companies from the same fund, with an average investment size of $8-10 million.