The team set to work. The number kept being sharpened. The product range kept changing. A pilot project kicked off at Snapdeal. By the end of July, Snapdeal was processing 50,000 orders a day and made a revenue of $2 million in that month. All discounts were turned off. The company was selling low-value, high-margin goods.
It wasn’t a great deal. But for the size of the company that Snapdeal was going to be, it was decent. But for the huge figure they had raised–$1.5 billion, presumably on the back of nose-bleed growth projections–it was far short of enough.
What was Plan B?
An important part of Plan B was to get its hands on more cash. Softbank had lost interest. All the Japanese conglomerate wanted was a sale. So, Snapdeal decided to raise money by selling its silver: Freecharge for Rs 385 crore. It is in talks with several companies, including Gati Ltd, to sell Vulcan, its logistics arm, for around Rs 100-150 crore.
A decision is yet to be made on Unicommerce, but in the next two weeks, Snapdeal may start looking for buyers for it, too. Just FreeCharge and Vulcan could give Snapdeal about Rs 500 crore. Add to this the money it has in the bank–approximately Rs 100 crore, according to sources.
This corpus should last the company for two years, according to multiple employees at the firm. If it does bring down net burn to a targeted figure of $3 million per month, it may make the money last even longer. But one thing is certain–even if Snapdeal were to miraculously reach profitability this time around, it is unlikely any investor, much less SoftBank, would have a welcome bouquet for it at the end of the runway – profitability is neither necessary nor sufficient for VCs, when they come at the cost of scale or growth. So having gone against investors, especially the leviathan, SoftBank, Bahl, and Bansal need to discover a way to survive and stay relevant completely on their own without having to rely on any investors–new, or existing.
Snapdeal is clear. It is going to be India’s answer to Taobao in China or eBay in the US. Senior executives told The Ken.
“Snapdeal 2.0 will be a seller-focused machine,” said one such employee who asked not to be identified in exchange for candour. He explained that so far Snapdeal was spending money on trying to compete with the customer experience offered by Flipkart and Amazon. Not anymore, though.
“The focus will now be on the sellers,” he added. The company wants to bring unstructured sellers on the platform, or what is called in retail parlance: longtail. Snapdeal’s strength, which was to sell phones and white goods will change. “We will start selling at unbranded general merchandise, it will bring in bigger margins even if the order value is smaller,” he adds. But there already exists a company that does something similar. And has the same valuation of about $1 billion. Shopclues.
It also has ambitions to be the Taobao of India and has hedged its bets by trying to make a business of selling to “mid-pyramid customers” but found life difficult.
“The fact is their Plan B was survival, plain and simple. No fancy plans to grow. Just to break-even and delay making the difficult decision,” says one of the employees quoted above. “There is no real story. Because they [Bahl and Bansal] don’t have a real plan for anything after six months.” And then what?: “Then? Another pivot,” he said.
No seriously, for now, forget the pivot story. That may be a wild goose chase that you, dear reader, have been on with Snapdeal for a while. By all accounts, late last year Snapdeal was in need of money and there was some on the table from Naspers or Tencent. All Snapdeal and its set of investors had to say was, yes; except they didn’t.
“Softbank said I will bring the money, you don’t have to go anywhere else,” said a former senior Snapdeal official who was part of the funding negotiations. “The term sheet with Softbank came but the money never did. That was the pivotal moment when some egos were bruised.”