IDGVI News: Media Coverage 2012

AVCJ - Deal of the week

IDG bets on potential e-commerce consolidator

Asian Venture Capital Journal | 14.02.2012

By Susannah Birkwood

Survival of the fittest is a concept that applies to almost every ambit and rings particularly true in the field of Indian e-commerce of late. Last week, the country’s largest online retailer, backed by Tiger Global Management and Accel Partners, acquired its competitor site in the latest in a series of consolidation plays within the sector. Now IDG Ventures India and SAIF Partners have led a $14 million Series B round of funding for Brainbees Solutions, which owns the and websites. Industry participants expect a spate of acquisitions this year as VC-backed companies struggle to remain capitalized in a marketplace which welcomes new entrants on an almost daily basis. What differentiates Brainbees and makes it more of a consolidator than a takeover target, according to Manik Arora, managing director at IDG, is the market-leading status of its two rapidly-growing brands.

“What’s setting [acquiring companies] apart at the highest level is market share, especially in the internet space, given the network effect,” says Arora. “If you’re number one or number two, you continue to be so, so the network effects are high if you’re already a leader.”

FirstCry is India’s number-one e-commerce platform for kids, babycare and maternity care products, while GoodLife occupies the top spot in the beauty products market, selling brand such as L’Oreal, Mattel and Revlon. IDG was invited to invest in the websites’ parent company by SAIF Partners, which injected $4 million in the firm last April. As part of the latest round, Brainbees – which was founded in December 2010 and employs 180 people – received $7 million of capital from IDG and SAIF apiece.

While IDG was dazzled by the company’s market-leading position, it was the track record and prowess of its founders, Supam Maheshwari and Amitava Saha, that ultimately attracted the technology investor’s backing. Maheshwari and Saha previously executed a successful exit from Brainvisa Technologies, an e-learning company backed by Infiniti Ventures and Sequoia Capital. Having sold the firm to Indecomm Global Services, they took Brainbees from startup to market leader of the categories in which it operates in a matter of months.

“E-commerce is not just about marketing, user interface and technology, that’s actually half the value,” says Arora. “The other half is on-the- ground operations logistics delivery networks so the management teams which have a handle for both sides of the puzzle will be the ones that are more likely to become the number-one.”

Another factor that will separate the wheat from the chaff over the coming months is capitalization – companies with sufficient liquidity can afford to focus on increasing their market share by spending on marketing. “You’re seeing many Series B and Series C rounds for companies as it becomes clear that they’re not number one in their category,” adds Arora.