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In 3 years, 47 funds invested nearly $700 mn in 52 Indian e-commerce firms

Fifty two eCommerce companies have raised close to $700 million venture capital over the past 3 years and out of them, only 30 % could raise the next round of funds, according to a new report.

Out of the 52 companies which managed to raise nearly $185 million in series A, 16 firms went on to raise $210 million in series B and and 7 companies went on to raise $300 million in further rounds taking the total to about $695 million, according to a study conducted by Bangalore based Allegro Capital Advisors.

The investment figure includes Flipkart’s $150 million funding and excludes angel and individual funding into the sector.

Currently, series A is almost non-existent and there is a series B drought for ecommerce companies, wrote Aravind G R and Deepak Srinath in the report.  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,  they said.

The analysis points out that 10   multi category retailers have garnered $355 million and  $200 million has been invested into 21 apparel and accessories sites. In baby product category, as of now $30 million has been invested across 5 firms and $40 million has been raised by private labels so far.

Inventory carrying 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.

Daily deals portal secured $25 million, however most of them pivoted into horizontal ecommerce. 13 other niche eCommerce categories etailers raised $61 million including home decor, health and beauty and jewelry.

Over the past three years 47 venture fund and institutional investors have invested in 52 companies participating in various rounds.

So far, 10 investors have invested in 3 or more companies with estimated exposure of 30-50 million per fund, 18 investors have more than one ecommerce investments.

Current FDI rules and investigation against Flipkart and others for alleged violations are adding to investor caution and apprehension.

Future Outlook

  • Fundamentals are strong- the internet user base is growing.
  • 2-3 horizontal brands and one or two players in verticals are likely to survive and eventually become profitable
  • Higher ticket size categories might require lesser capital
  • VCs need to brutally cull their portfolio and back one or two companies
  • Investors need to figure out meaningful exits for companies that manage to survive

[This article is part of our 2012 Recap series, and is supported by CCAvenue.]

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CCAvenue is India’s largest payment gateway solution powering thousands of eMerchants with real time, multi-currency, multiple payment options online payment processing services. The solution is powered by proprietary technology that integrates transaction-processing, advance shopping cart, auction payment collection facility, mobile page, risk assessment and fraud control, smart analytical dashboards, financial reporting and order tracking and many more features.