There is a dearth of talent in India, more so on the engineering side because only 10 pe rcent of the Indian engineers are employable. Snapdeal and Flipkart, having realised that training engineers is expensive and can also take time, are on the lookout for startups to boost their engineering skills. On an average, a large Indian IT services firm like Infosys or a Wipro spends Rs 2 lakh, per hire, in the first six months of an employee joining and still cannot upgrade them to an enterprise level. To make it easy, these large ecommerce players, who already have 10,000 employees each, are scouting for leaders who have built technology companies that can make it easier to engage consumers better. Yes, being small, but packed with a powerful idea, is the next big thing.
They are acqui-hiring small businesses or startups that have created a reasonable traction with a product or a service. Sources from both these companies say that they have a target of acquiring 25 companies each by the end of this financial year. These will be small ticket purchases between the range of Rs 30 crore to Rs 120 crore. There is no kitty set aside for such acquisitions. But at least Rs 200 crore could be spent on small deals going forward.
Sources in Snapdeal say that they have closed a deal with LetsGoMo for an undisclosed round. This team is going to better the mobile app experience for Snapdeal. As of now Snapdeal has acquired six small companies over the last one year (see table). This excludes Freecharge because it was a large ticket buy of $400 million, which was an all stock deal. Flipkart too has acquired five companies.
These small IT companies are acquired for the deep skills of the founding team in areas of machine learning, big data engineering, analytics, mobile app testing and development services.
Sources also say that apart from buying out existing investors, of the acquired company, for a 10x valuation, the founders, on joining the ecommerce giants as employees, would be paid a yearly retainer plus a salary of Rs 60 lakhs for per annum.
"This is a good move because it allows them to find ready talent. But the question is how many entrepreneurs are ready to sell," says Sanchit Vir Gogia, CEO of Greyhound Knowledge Group.
This is true today because many entrepreneurs feel that they can raise money in the market and resist being bought by large companies. However Flipkart and Snapdeal need these company founders to run large teams and are going all out to "make them an offer they cannot refuse."
Amazon is following a strategy of giving stake to stellar talent. While PayTM has made a single acquisition so far. They too are on the look out for engineering teams that can ramp up operations. In big part, the engineering talent is also being bought to make sure that the system does not crash on a big sale day, which has happened for most ecommerce companies.
It is going to be a good year for startups and engineers. But whose growth could also be hampered by these early buy outs or if the market slows down entirely.
- See more at: http://www.businessworld.in/news/economy/snapdeal-&-flipkart-race-for-acqui-hiring/1891835/page-1.html#sthash.drfKh3jr.dpuf
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