Flipkart may have just become the first Indian billion dollar Internet company

While much is said about India being a service oriented, rather than product oriented country, several e-commerce startups have emerged over the last couple of years to prove that India can also nurture Internet companies which can compete with companies in the Silicon Valley. One such startup is Flipkart.com.

Hailed as India’s Amazon.com, Flipkart is close to raising $150 million in a PE round of funding from General Atlantic Partners in one of the biggest ever deals for an Indian Internet firm, making it the first Indian Internet company to sport a billion dollar valuation, as revealed by VCCircle.

Founded in October 2007, Flipkart was a humble online book retailer which went on to become the largest online bookstore in India within two years, surpassing its rivals such as Infibeam, Landmark and Indiaplaza.

In 2010, it diversified into becoming a generic e-commerce website, selling mobile phones, laptops, music CDs/DVDs, movies, games and software, and acquired a California-based company social book discovery service weRead.

It underwent a major brand makeover earlier this year with a new interface and logo, and kickstarted its offline advertising campaign in addition to its aggressive online campaigns by putting out ads in the leading newspapers and on television channels to become one of the hottest Internet companies in India, signifying the huge growth the company was experiencing.

Recently, it further expanded its product portfolio to encompass home appliances and personal & health care products as well.

The company was initially self-funded, with co-founders Sachin and Binny Bansal spending Rs 400,000 ($9056) to setup the business. They later raised two rounds of funding from Accel Partners and Tiger Global Management to the tune of $31 million, with the first round being around $10 million and the second round being $20 million.

As of June 2011, Flipkart had 1,500 employees on board and setup 5 warehouses in Bangalore, Mumbai, Delhi, Chennai and Kolkata, as noted by VCCircle . Also it had experienced 2 million unit sales and 4 million unique vistors per month with sales growing at 25% per month, eyeing a $50 million run rate as reported by TechCrunch.

Now that Amazon is reportedly entering India in early 2012, this news becomes even more significant, considering that Amazon has previously, and unsuccessfully, tried acquiring the company, with Flipkart demanding a very high buyout price.

With the online retail industry in India pegged to reach $1.5 billion mark by 2015, sources suggests that e-commerce is just hotting up in India and we may soon seen many more Internet companies achieving similar success.

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VCCircle Ecommerce Investment Forum 2010 featured India’s most watched and exciting e-commerce company, Flipkart. Founders of Flipkart, Sachin Bansal & Binny Bansal, were in an engaging conversation with Mohanjit Jolly, Executive Director, Draper Fisher Jurvetson. Read on for the duo’s business story, the Flipkart 'Aha' moments and the nuts and bolts of raising an e-commerce company.

Mohanjit Jolly (MJ): When was the brainstorm? And where did the idea of Flipkart come from?

Binny Bansal (BB): I joined Amazon in 2007. Sachin was already working here. We were roommates too. We were bored with our jobs and thought why don’t we do something of our own. If work at Amazon can’t offer satisfaction, then hardly elsewhere.

Sachin Bansal (SB): After that we thought of doing something…something simple, easy from home and which could get us money. An idea came up of a comparative shopping engine. We started looking at websites we could compare. Then it struck us: there aren’t sites to compare! This followed with another question: Can two guys working from home do a better job at providing service than what exists in the market? We quit our jobs and started working on this.

MJ: Did you put together a power point presentation and went asking for funds?

SB: We assumed that we would start with VC funding. That is what we had read on a lot of blogs. We attended events like Proto, Headstart etc. Within a couple of months it was clear that it isn’t working out! It wasn’t a smooth ride. We stopped reading the blogs, stopped going to startup events and just started focusing on building the company.

MJ: How did you come up with the roles and responsibilities and made sure that you don’t step on each other’s toe?

BB: It evolved on need basis. Both of us were techies. Sachin is good at organization. I took care of catalogs and supplier relations. It was very much on need basis. And this evolved over time. No conscious effort.

MJ: Exactly when did you decide to raise money? Did the VCs come knocking? Or you went out?

BB: It was a mix of both.

SB: They came to us. It is like that inflection point stuff. We approached a few people too. We started talking to Accel Partners by end of 2008.

MJ: How long was the Accel process?

BB: 6 months.

MJ: VCs are a double edged sword. They talk about topline. They say you got to think big. Was the vision there throughout? Or did that come after interactions with VCs that it is going to be truly large?

BB: We got in with an idea that it will be big. We will make it big. We didn’t have capital to grow inorganically. We had to be profitable. It was a part of strategy that as soon as we have some breathing room we would want to grow as soon as possible.

MJ: How much thought went into deciding on books?

BB: We gave a lot of thought to it. There were some advantages with books- no damages, no touch-and-feel problem. We were unknown to people and trusting us with a Rs 100 transaction of Chetan Bhagat book was much more easier.

MJ: ABCD is my acronym in ecommerce context for A: Access B: behaviour C: collections D: delivery. So question is- pick any of them, or all of them. What are the challenges that you faced? What sort of challenges operationally, externally that you ran into. Give some specifics.

BB: We faced all the challenges that arise in dealing with third party. You won’t get a payment gateway unless you have an office, phones etc. So we started with Paypal’s service. We had to work closely with courier companies across India. Then, getting data from suppliers is difficult. We now have a large team for supplier relations.

MJ: When you were talking to delivery/logistics providers, what problems arose? Did you ever fail to deliver on SLAs?

BB: We didn’t care about the costs. We started with two companies. We chose the best couriers and paid them retail rates. Started with Bluedart. Even if you lose some money choose the best.

SB: For third party we weren’t negotiating on price, we were on service. Prices will happen later. There is enough competition to ensure that prices come down.

MJ: Recruiting and Retention. India is still very cash compensation based economy. Lately some feel equity options are good and attractive and so this challenge gets mitigated in some manner. But still in India it really comes down to teams. Talk about that. How were you able to incentivize, attract, retain and train a team?

BB: An exciting thing about being an Indian company operating in Indian market is that they can explain the stuff to their parents, friends and people around them. Every entrepreneur should try to sell this to their employees.

MJ: Do you guys think that a pureplay online business at least in near future can be created in India? Is that something you fundamentally believe in?

SB: It is possible. I will not call our business a pureplay ecommerce business. This is not what we do everyday. If you only concentrate on online then also the opportunity is big.

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