Weekly commentary on startups, entrepreneurship and business

Edition 26

“Wake me up,
when it's all over"
Tim Bergling

Dear *|HTML:FNAME|*,

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There has been major cheer with the proposed acquisition of Flipkart by Walmart, and it is indeed a good time to be an investor or early employee in Flipkart. I am slightly circumspect on what this entails for the long term of the Indian startup ecosystem, though.

On a macro level, Flipkart is (was?) the shining light for the India e-commerce story, and as the Mint succinctly puts it this is the "End of $100 billion dream". With the Bansals most likely to leave Flipkart, the two most storied Indian entrepreneurs will close their big chapter. This contrasted with Alibaba, Didi Chuxing and other Chinese giants that took advantage of local understanding and fought their way to win the Chinese markets. Were we sold too hard and fast on the Indian e-commerce dream?

Flipkart had a full 5 years before Amazon entered the Indian market, and it led the market before a few strange strategies (like going app only) allowed Amazon to claw greater market share. Flipkart has raised more than $7Bn across rounds, and estimates peg its GMV from anywhere between $7-$10Bn. In VC parlance, achieving an ARR equal to how much you had raised in so many years is incredibly capital inefficient. The $100 billion dream not being achieved is less a case of resources, and more a case of poor management. 

On a deal level, I think this is an unusually expensive deal and Walmart is paying up. Flipkart has an estimated 10% gross margin, compared to Walmart's 25%. Assuming a slightly higher revenue than reported in Flipkart's filings, taking a 10% GM on a $3.5Bn revenue pegs margin at $350Mn. A valuation of 17.5Bn is 60x gross margin (a snoopy proxy for P/E given FK is loss-making). Walmart's valuation to gross margin is 2x, and if Flipkart was valued using this multiple it would be worth $700Mn. There is of course growth, synergy and other such intangibles which give the rationale for an expanded multiple - but this could be Walmart's expensive attempt at winning in online after losing the US to Amazon, and China in general.

While the acquisition will return a lot of liquidity in the ecosystem, and there will be new entrepreneurs and investors, our wait for the $100 Bn Indian internet giant will go on. 

This week, I look at Ola, LuLaRoe and Avicii et al. 
  1. [Large Startups]: Ola founder Bhavish fights to avoid Flipkart's fate
  2. [Work Culture]: Calendar, not to do lists
  3. [Growing Startups]: Women say LuLaRoe's legging empire is a scam
  4. [Buzzwords]: Blockchain is about to revolutionize the shipping industry
  5. [Life x Startups]: Divine Discontent - Disruption's Antidote
  6. [The New Monopolies]: Product to platform - Inside Amazon's dominance
  7. [Data!]: AI is cracking open the Vatican's archives
  8. [Modern Economics]: A sidelined Wall Street legend bets on Bitcoin
  9. [Classic Economics]: Inside the world's most elite and secret trader's club
  10. [Business is Entertainment]: Avicii and EDM's promise of excesses
Based on an excellent recommendation by members of the community, I now asterisk* paid articles. I have started adding India focused content as well. Please do drop in reads that you found interesting this week here and I would love to accommodate them. You can pass on the love by sharing this with your friends and colleagues who can sign up here, and these are all the previous editions

I started this with the belief that there is a whitespace on conversations by venture capitalists in the entrepreneurial and startup ecosystem in India. This is my small way of starting a conversation. In case you have any feedback on the structure, design or content please feel free to reach out to me in reply to this email. 

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