Bengaluru: Online market ShopClues has raised Rs50 crore in venture debt from InnoVen Capital, in a rare example of a home-grown unicorn choosing venture debt.
That money was raised from Singapores sovereign wealth fund GIC Pte Ltd, and existing investors Tiger Global Management and Nexus Venture Partners, at a valuation of over $1.1 billion.
Start-ups usually raise debt when they are running short of cash, for working capital and to fund acquisitions, amongst others.
ShopClues said it raised debt mainly for day-to-day business activities.
A business that’s getting close to profitability has the choice to raise either equity money or debt. Equity will result in dilution, however you can pay off debt through your balance sheet. Debt is an excellent instrument to meet working capital requirement or any gaps to plug to attain profitability, ShopClues chief executive Sanjay Sethi told Mint.
We’re rewarding on a contribution margin amount, but need to attain a scale where we can cover our fixed costs. Our burn is reducing consistently. Therefore, debt comes into play so that we can scale quickly and reach profitability, he added.
Contribution margin is the selling price minus variable costs, a metric that assesses whether firms can match the variable cost with revenue.
The companys burn rate is much lower than larger competitors for example Flipkart, Amazon and Paytm.
Some analysts are still doubtful concerning the practicality of ShopClues. Indias e commerce marketplace nearly stagnated at $14.5 billion in 2016 compared with $13 billion the year before, according to consulting firm RedSeer Management Consulting Pvt. Ltd.
Analysts had previously predicted that Indias e commerce sales will reach $48-100 billion by 2020, but now those approximations look much fetched. In a marketplace which will grow at a much lower speed than previously thought, many now consider that so called flat online retailers for example ShopClues will fight to demonstrate they are workable.
Mint reported on 2 May.
For the time being, nevertheless, at least some investors like ShopClues because it isn’t running the same race as Flipkart and Amazon. The company is focused on taking unstructured classes online and has a largely different customer base from the two giants.
A couple of things stand out for ShopClues. Their customers are not the ones often buying on Flipkart and Amazon. There’s a enormous marketplace past the metros and ShopClues is going after them. Also, the direction has been prudent on how they make use of the money. They havent raised anywhere close to the capital a number of the larger firms have used and consumed to get where they are today.
There are two aspects to an IPO, one is when the business is prepared as well as the other is, if the marketplace is prepared. Now, the direction is focusing on the former by cutting down on prices. Beyond that, you need to wait to time the market, this individual added.