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For its war with cash-rich Amazon, Flipkart gets $2.5 billion SoftBank boost

Catch Team | Updated on: 10 August 2017, 21:31 IST
(Tomohiro Ohsumi/Bloomberg/Getty Images)

There will be fireworks in the e-commerce space in the next few months.

Japanese investment fund SoftBank has put more money in the coffers of Indian firm Flipkart, through its $100 billion technology-focussed Vision Fund. While the amount invested is not clear, different sources in the industry peg the amount between $2.5-2.6 billion (Rs 16017.5 crore).

The latest round of fund infusion is set to make SoftBank the largest shareholder in the company, at the expense of New York-based investment firm Tiger Global. Tiger Global was till now the top shareholder in Flipkart, holding around 28%.

This may trigger some changes at the top level. Current Flipkart CEO Kalyan Krishnamurthy is Tiger Global's representative in the e-commerce major, but his position will come into jeopardy.

A monumental deal

In a press release, Flipkart said it will now have over $4 billion of cash in its balance sheet.

“This is a monumental deal for Flipkart and India. SoftBank's proven track record of partnering with transformative technology leaders has earned it the reputation of being a visionary investor. We're excited to welcome the Vision Fund as a long-term partner, as we continue to build our business with a focus on serving the needs of all Indians, and driving the next phase of technology adoption in India,” said Binny and Sachin Bansal, co-founders of Flipkart, in a statement.

Flipkart recently gave up the idea of buying the No.3 player in the market, Snapdeal, after months of negotiations over the latter's valuation for the proposed deal. Snapdeal is a portfolio company of SoftBank.

SoftBank also pumped in $1.4 billion into Paytm recently.

“India is a land of vast opportunity. We want to support innovative companies that are clear winners in India, because they are best positioned to leverage technology and help people lead better lives. As the pioneer in Indian e-commerce, Flipkart is doing that every day,” SoftBank founder Masayoshi Son said in a statement.

After the latest round, Flipkart has raised more than $6 billion in cash since starting out in 2007. This is the highest amount raised by any start-up in India, and among the highest globally.

More even contest with Amazon

Over the past year, analysts in the market were feeling that Flipkart had run out of steam due to lack of funds from its investors. As many as 700 people were reported to have been laid off in 2016 to save costs.

This was especially significant as Flipkart is competing against the cash-rich Amazon. In a desperate attempt to safeguard its turf, Flipkart was trying to purchase Snapdeal.

Amazon has been tightening its grip on the Indian market with its almost-infinite warchest, and cutting-edge technology. The company is looking to hire at least 1,000 software professionals in India – data analysts, natural language processing experts, AI machine learning experts and Android developers.

Softbank's funding will help Flipkart to hire more people in the field of research to develop future technologies to improve customer experience, and compete on a more level playing field with Amazon.

With this new round of funding, the company can now be expected to invest more in improving its platform, as well as attracting better deals from sellers by offering them higher commissions.

First published: 10 August 2017, 21:31 IST
 
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