Why are Investors Abandoning Flipkart?

India's well-known e-commerce platform Flipkart has attracted people's attention again, and this time it's not because of their famous Big Billion Days sale. Walmart-backed Flipkart is in the eyes of investors as its major shareholders Tiger Global and Binny Bansal, along with American venture capital firm Accel have made their exits from the group with heavy pockets.

In just two days, both major and minor investors with a stake of 20% have sold their stakes to Walmart, exiting from the company completely. Tiger Global, Binny Bansal, and Accel, each holding 4.1%, 1.80%, and 1.10% stakes, respectively, sold their shares to Walmart.

Tiger Global cashed in a whopping overall gain of $3.5 billion with the Flipkart exit, whereas Accel received a cumulative return of $1.5-2 billion. The same goes for the ex-CEO of the company, Binny Bansal, who gained $1-1.5 billion. On average, the three shareholders grabbed 25-30X returns after divesting their full stakes to Walmart. If there is a sweet deal, then these exits would be a perfect example.

All the investors earned hefty gains on selling their stakes to Walmart. But, when more than one shareholder leaves the group, there is a possibility of something fishy going on. That's what we would be looking into. Is there a threat to Flipkart's future which led to original investors like Tiger and Bansal jumping ship? After all, both investors are still a part of Flipkart's ex-subsidiary PhonePe’s shareholding.

Latest Funding Round

With the latest updates of several shareholders selling their stakes to Walmart, Flipkart's shareholding pattern is seeing constant change.

This situation raised several questions in people's minds like “Is there something going on with Flipkart?” “Do firms like Tiger Global or Accel have no plans to invest in India in the future?” or "What does Walmart have in "store" for Flipkart to improve its $35 billion valuation? (Flipkart lost $3 billion in valuation since 2021)."

Accel led Flipkart's 2008 seed funding round by making an investment of $800,000. During this time, the Bansal duo were still running their business from an apartment. Similarly, Tiger Global was one of the earliest investors of Flipkart, who invested $8.6 million in the group in 2009.

Up till today, Flipkart has had 27 funding rounds and has raised around $14.3 billion in total. The latest funding round, which took place on July 31, 2023, raised $1.4 billion, which took Flipkart's valuation from $33.6 billion to $35 billion. This was after a fall in valuation from $38 billion due to an ESOP buyback. So Flipkart did experience an increase in valuation, but never reached its previous peak.

This rise in valuation showcases investors' trust in the company's future prospects. And since Walmart was the investor leading the funding round, it also points towards the e-commerce giant's plans to do something major in the upcoming times.

We did catch a whiff of a possible initial public offering some time ago. Flipkart might speed up the execution of this plan. You never know. 🤷‍♂️

Investor’s Plans

Walmart's grasp on Flipkart seems to be getting stronger as the US-based group will likely own around 80% stake in the Indian e-commerce platform. Apart from Tiger, Accel, and Bansal, investment firms like Franklin Templeton, Oryx Group, and Antara Capital (2.2%) also sold their stakes to Walmart.

Walmart acquired a 77% stake in 2018 by investing around $16 billion in Flipkart. This was the biggest acquisition ever done by Walmart since its establishment. And now, by buying shares from the investors above, Walmart's position of being the major decision maker in Flipkart is better cemented.

With a delayed plan of bringing an IPO, as per a source, Walmart plans to increase Flipkart's market share in the e-commerce sector. After Walmart acquired Flipkart in 2018, being a subsidiary of Flipkart at the time, PhonePe came under Walmart's acquisition. However, since the management, investors and related figures wished for both startups to perform independently, their operations were separated with PhonePe moving house back to India.

With attention being focused more and more on its Indian investments, Walmart's trust and confidence in the potential of the nation's market seems to be increasing. Globally, Walmart is invested in only a few countries like India, Mexico, China, and more. At the same time, the retail giant has already exited other big markets like the UK, Japan, and Brazil.

As for other investors, Tiger Global and Accel have their own plans. Regarding India, Tiger Global has invested around $6.5 billion in startups. Beside Flipkart, startups like PhonePe, Mensa Brands, Wow! Momo are some of the companies that the investment fund is backing.
Tiger Global might have sold its overall stake in Flipkart, but it was all about profit here. The investor received amazing gains, around $3.5 billion, which is around ₹289.12 crore. Yes, Tiger Global was one of the first investors in the online bookstore platform, but it played a major role helping Flipkart reach the top with a market share of 48%. Tiger Global is still invested in PhonePe and has other investments in India, so it likely has no plan to leave the country's market.

Wondering what was the deal with Binny Bansal, the man behind the envisioning of Flipkart, aka the co-founder and ex-CEO? Let’s know his story.

Binny Bansal's Misconduct

During its foundation in 2007, Flipkart was a simple online bookselling website started by two IITians, Sachin Bansal and Binny Bansal, and no, they are not related to one another. Alumni of IIT Delhi, the duo Bansals were former employees of e-commerce giant Amazon. Realising that the e-commerce market in India was quite small then, the friends decided to capitalise on their experience from Amazon and started Flipkart.

But, the sweet story of the hard work done by the co-founders didn't have a happy ending. Now both the founders are only associated with Flipkart superficially, as Sachin Bansal resigned in 2018, selling his entire stake of around 5% to Walmart.

This happened two years after Flipkart's foundation when the American investment firm, Tiger Global, discovered Flipkart. They invested around $9 million in 2009 and became Flipkart's anchor investor. Tiger Global's Lee Fixel, a good acquaintance of Sachin, played a major role in making the co-founder leave. Because the decision to turn Flipkart into a mobile-only platform backfired, Sachin had to resign but not before watching Lee Fixel's betrayal as the Tiger executive didn't vouch for the then-CEO.

Soon Binny Bansal followed suit and resigned from the position of CEO. This took place when Walmart came into the picture in 2018 leading to Binny Bansal leaving the office because of “serious personal misconduct.” The actual reason for which Binny was accused was kept hush-hush. And even though Binny was not found guilty, the co-founder decided to be a part of the company as just an investor, resigning from his post as CEO.

Now, Binny is no longer associated with Flipkart as he sold his stake of around 2% to Walmart. But, Bansal is backing several other startups in India, showcasing his abilities to be a valuable investor in the industry.

The Bottom Line

Flipkart, along with many other companies in the e-commerce group, saw turbulence in their valuations in the past year. This was a sign of the market's uncertainty. But, the recent funding round promises a good time for the company. Will it be able to defeat its biggest competitor, Amazon and become India's top e-commerce chain? Or does Walmart have something planned for Flipkart as it is slowly trying to gain complete control over the e-commerce platform? Answers to these questions may be revealed with further updates, so stay in touch with us!