Exclusive: FashionandYou in merger talks with Pepperfry. Sign of things to come.

In India Online by NextBigWhat

Gurgaon based online retailer Fashionandyou owned by the Smile Group is in advanced talks for a possible merger with Pepperfry, the Mumbai based e-commerce marketplace backed by Norwest Venture Partners, according to top sources.fashionAndYou

The merger between FashionandYou and Pepperfry, if it goes through, this will set the ball rolling for the anticipated consolidation waiting to happen in the $14 billion e-commerce industry in India.

In August last year, Fashionandyou which had raised a total over $48 million from Norwest Venture Partners and Intel Capital, had acquired online retailer UrbanTouch for $30 million.

“Fashionandyou has been talking to three different ecommerce companies at the moment, however Pepperfry seems to have strong chance,” another source in Fashionandyou who did not want to be named said.

On Quora, there has been talk about how Norwest Venture Partner (NVP), which is also an investor in Pepperfry is leading the drive to merge the two companies and an announcement is expected in the third week of January.pepperfry

Importantly, there are reports of internal conflict between Smile group founder Harish Bahl & his core team and Abhishek Goyal. This has led investors in FashionandYou to bring in Ambareesh Murthy from Pepperfry, ex eBay India head to lead Fashionandyou.

Launched in January 2012 Pepperfry had secured $5mn from Norwest Venture Partners. At the time of launch Pepperfry offered a range of 25,000+ pocket happy lifestyle products across multiple categories such as clothing, furniture and home décor, precious and Fashion Jewellery.

Earlier NextBigWhat had reported about a “revolt” in Fashionandyou against Abhishek Goyal. The Gurgaon based flash sale portal has been inflicted by differences at the top level. In August last year, Fashionandyou witnessed the exit of Pearl Uppal, co-founder and then CEO of the company.

After Pearl Uppal, the Smile Group saw exit of Gaurav Kacharu (Dealsandyou), including VSSK Prasad (co-founder & Director B2B , bestylish) and Aneesh Nair (Group CTO ecommerce).

Read: Harish Bahl UnPluggd: All you wanted to know about the Smile group exit controversy and the road ahead)

VCs Vs. Ecommerce Portfolio

For Indian ecommerce space, this news has been more than obvious following the unprecedented bubble cum euphoria amongst VCs for ecommerce. The recent report focused on ecommerce investment pointed out that inventory led horizontal players may require $200 million to get to profitability, others (like marketplace) may require $80-100 million. Estimated 70-80% of ecommerce companies are on life support and in dire need of funds.

Recently, we (exclusively) reported about PlaygroundOnline and Sporsnest merging together and the combined entity raised funding from Blume Ventures.

Currently, Series A is almost non-existent in ecommerce space and there is a series B drought for ecommerce companies. Only 30% funded eCommerce companies have managed to raise series B and higher Consumer acquisition cost further inflicting eCommerce companies with negative margin.  It is unlikely for investors having eCommerce investment in portfolio to fund new ecommerce ventures.

According to multiple sources, more than 6 ecommerce companies including Pepperfry, MyDala, Dealsandyou amongst others are talking with each other for possible synergies.

As profits continue to elude ecommerce players, Venture Capitalists have adopted the bridge financial formula to give some internal funding in hope that venture will able to raise some money from other investors, an internet analyst told NextBigWhat.

Sign of things to come? Of a maturing ecosystem?

Also see: Exclusive: Flipkart to launch marketplace by March (Details)