Why is the Flipkart-Myntra merger a turning point in the Indian Startup Ecosystem? Sudhir Sethi, Managing Partner, IDG Ventures India tells us

Behind the euphoria, questions and interest that the Flipkart-Myntra deal has raised, we need to recognize some of the clear fundamental signals it sends out to the market in India and outside. But before we get into that, let’s revisit our Internet market numbers –

India has currently over 200 million online users.

India is likely to have the second-largest Internet user base in the world, and the largest in terms of incremental growth, with 330 million to 370 million Internet users in 2015.

India has the potential to double its economic contribution from the Internet in the next three years, from 1.6 percent of GDP at present to 2.8 to 3.3 percent by 2015 (Mckinsey & Company report).

Flipkart’s acquisition of Myntra is touted to be the biggest online deal in the Indian Internet space. This cash-and-stock deal supposedly saw online fashion retailer Myntra being valued at more than $330 million.

YourStory caught up with seasoned investor Sudhir Sethi, Managing Partner IDG Ventures, to understand the implications of this deal and why it is indeed a turning point in the Indian startup ecosystem.

Sudhir is a firm believer in the strong fundamentals that drive the Indian Internet market and he says, “It’s just the beginning; entrepreneurs in India are hungry to build world class businesses, and we will see more and more winners emerging; it’s just a matter of time.”

And why not? In a mobile first country of nearly 900 million mobile users, it’s time for India and Indian startups to push the peddle for growth.

Sudhir highlights some key indicators this deal has put forward to the market.

Large e-commerce oriented country

In the Indian e-commerce space it’s for the first time that a phenomenally good company is acquiring another phenomenally good company. The last few years have seen more or less distress sales, and this deal is obviously the turning point to the build up of a very large e-commerce oriented country.

Build large business out of India & M&A

This deal shows that now it is possible to build a large e-commerce company out of India and sell it within the country. India by itself is a strong marketplace.

Mergers and acquisitions at a significant level are possible in and within India.

ESOPs matter

Employees have made money in this transaction. The value of ESOPs for young Indian employees gets reinforced. More importantly, it’s a call to folks working in corporates and large organisations to look at joining startups. Some of the key people in Myntra were from large organisations. Mukesh himself came back from US as he believed in the opportunity here.

Clear message to Indian Rupee Investors

Currently, 90 percent of the venture money in India comes from outside the country. Big Indian institutions, family houses and corporates have not invested themselves in the startup ecosystem. This deal sends a clear message to the Rupee investors to look at venture investment as the new avenue for high returns.

Message to Indian Government - Open up multi-brand FDI

In less than a quarter of a generation, it is possible to build a billion dollar business in India for India.

And it is possible to build four or five more in e-commerce itself.

Don’t be an obstructionist. 

Investor Activism

Investors play an active role in value creation of a company.

Value creation for funded entrepreneurs significantly comes from exists and investors play a key role in enabling that.

Besides Myntra, IDG Ventures has backed more vertically focused e-commerce companies like Zivame, Lenskart, FirstCry, Eshakti (stitch and ship business) and most recently invested in online travel portal Yatra.com, which is supposedly going for an IPO next year.

Sudhir is enjoying working with his portfolio’s companies, as he believes nothing can compare to the fulfillment he gets from creating value for his entrepreneurs.

Incidentally, IDG Ventures has put five percent of capital allocation (from the current fund) into seed deals, and Sudhir says, “We are looking at doing nothing less than 10 to 12 deals this year and working closely with passionate young entrepreneurs.”