Indian Startup Shopclues Bags $1 Billion Valuation

E-commerce company raises close to $150 million from Singapore sovereign-wealth fund, existing investors

     Indian e-commerce company Shopclues.com said Tuesday it has become the latest startup to receive a billion-dollar valuation from investors, as the company gears up to go public next year.

The company raised close to $150 million from Singaporean sovereign-wealth fund GIC Pte Ltd. and existing investors Tiger Global Management Corp. and Nexus Venture Partners, according a person with knowledge of the deal’s terms. Investors valued the company at $1.1 billion, making it at least the seventh Indian startup valued to be at more than $1 billion, according to Wall Street Journal calculations.

The funds will be spent on advertising and improving technology as the company plans to reach profitability ahead of a planned initial public offering in 2017, Shopclues Chief Executive Sanjay Sethi said.

The latest round of funding more than doubles what Shopclues has received thus far, but is dwarfed by the billions of dollars raised by rivals Flipkart Internet Pvt. and Jasper Infotech’s Snapdeal. Flipkart has raised close to $3.5 billion and Snapdeal $1.5 billion.

Shopclues’s business is much smaller than its rivals. The company says its gross merchandise value, the value of all the goods sold on its website, is currently on track to hit $750 million this year. The company sells mostly low-cost items like flyswatters and $3 saris in smaller towns and villages. Flipkart and Snapdeal make most of their money selling smartphones and other electronic devices.

  But investors like Shopclues’s prospects of turning a profit in the near future. Flipkart, Snapdeal and Amazon’s India unit lose money on almost every transaction as a result of discounts, and so are burning through millions of dollars every month. Fierce competition means there is little hope that any of these companies will become profitable soon.

  Investors who once considered cash burn a necessary evil to grow the e-commerce market in India are now questioning whether some startups will ever make money. Companies whose products are sold on e-commerce sites say they are often offered below wholesale prices and that goods are regularly bought by other retailers, and not consumers. Shopclues still offers discounts, but doesn’t sell its products at a loss like its rivals.

  Startup executives say they are finding it harder to raise new rounds of funding unless they show they can be profitable.

Investors, who used to ask only about how fast Shopclues could grow, now want to see data on how efficiently the company spends its cash, said Mr. Sethi.

“This time the conversations with investors have been very different,” he said. “In early 2014, it was harder to explain our differentiation compared to the other guys, especially since they already had a wall of cash.”

Mr. Sethi is now weighing where Shopclues should list. While the company is leaning toward listing in the U.S., the appetite for technology startups there has cooled, with several listing below their last private valuation.

Shopclues says its billion-dollar valuation is conservative for a technology startup given its current revenue of around $75 million, and is designed to facilitate a successful public offering.