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SoftBank rift with Kalaari, Nexus threatens Snapdeal's future

31 March 2017

A rift between investors on the board of directors of Snapdeal has led to the online marketplace company missing out on at least two funding offers over the past six months, reports today said.

The clash is between early Snapdeal investors Kalaari Capital and Nexus Venture Partners on one side, and SoftBank Group Corp, the company's largest shareholder, on the other. At the heart of the matter is Snapdeal's valuation in a potential funding round, Mint newspaper cited its sources as saying.

According to Business Standard, its sources say while Kalaari Capital and Nexus Venture Partners are confident of the company's present business plan and want it to go for an initial public offering (IPO) in the next two years, Softbank wants to immediately sell its stake in the company where it has invested close to a billion dollars.

The boardroom battle has contributed to the crisis at Snapdeal (controlled by Jasper Infotech Pvt. Ltd), depriving it of much-needed cash. Since January, Snapdeal has cut hundreds of jobs, slashed spending on discounts and marketing and seen a sharp drop in monthly sales.

The differences between the board members may also complicate a potential sale of Snapdeal. SoftBank has initiated talks with Paytm and Flipkart to sell Snapdeal, it was reported earlier. (See: SoftBank brokering merger of Snapdeal, Flipkart: report).

Over the past six months, SoftBank has offered to invest at least once in both Snapdeal and its payments unit Freecharge. The proposed deal would have lowered Snapdeal's valuation (including Freecharge) to less than half the $6.5 billion it fetched in its last funding round in February 2016, the people cited above said.

 But the deal was rejected by Kalaari and Nexus as the valuation drop would have led to a significant increase in SoftBank's stake and a corresponding slide in their ownership, the people said.

When SoftBank offered the cut-price deal, Kalaari and Nexus asked the Japanese investor to buy at least part of their shares in the company.  SoftBank, which has already pumped roughly $900 million into Snapdeal, refused, favouring a direct infusion into the company, the Mint report said.

For Kalaari and Nexus, a lot rides on Snapdeal. It is their biggest bet and generating a lucrative exit from the online marketplace could be crucial for the success of the two Indian venture capital firms. That's why a fall in their Snapdeal stakes could be damaging.

SoftBank owns 33 per cent in Snapdeal, while Nexus owns roughly 10 per cent and Kalaari nearly 8 per cent. Chief executive officer Kunal Bahl and chief operating officer Rohit Bansal, who are also co-founders, together own less than 6.5 per cent of the company after selling part of their stakes.

According to Business Standard, Kalaari and Nexus are unhappy with the valuation at which SoftBank is trying to sell Snapdeal. While Snapdeal's valuation was pegged at a hefty $6.5 billion till December 2016, making it the second most valuable Indian ecommerce firm after Flipkart, Softbank is apparently planning to sell it for between $600 million to $800 million.

"The two early stage investors, for whom Snapdeal is a treasured investment even till now, are not ready to have its valuation pegged so low. Plus it would mean that they would have to let go of their investment at a loss, which they are not ready for," one of the paper's sources said.

Also, not all of Snapdeal is loss making. Its logitics arm Vulcan Express Private Limited and e-commerce management firm Unicommerce are either profitable or would be so in the days to come. Furthermore, its wallet Freecharge is still the number two wallet player in the country. All this still makes Snapdeal a valuable company and Nexus and Kalaari want these things to be considered before selling the online marketplace.

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