By Radhika Nair & Peerzada Abrar
Bangalore: Technology investors IDG Ventures India and SAIF Partners have closed one of the biggest venture investments in a specialized online retailer, pumping $14 million (Rs 68 crore) into e-commerce firm BrainBees Solutions, which runs baby-care portal First Cry and the newly-launched GoodLife for beauty and wellness products.
The funding, led by IDG, closed on Saturday and underscores the frenetic deal-making across the country's ecommerce industry. It comes just a week after online fashion retailer Myntra announced a $21 million funding from a consortium of investors, including IDG, which is leading the wave of risk capital funding for specialist start-ups.
"We like to invest in online retailers with the potential for profit margins of 20-40% and we believe only vertical portals that sell single categories can offer such margins," Manik Arora, the managing director of IDG Ventures, said.
"E-commerce is a game to be played very carefully. To win, you have to play big and capitalise well," he added.
The Indian online commerce market is moving in two parallel tracks, one dominated by multi-product retailers like Flipkart that sell everything from books to electronics, and vertical or single-product ventures such as Myntra, apparel retailer Fashionandyou and First Cry, which stocks only baby-care items.
A few days ago, Flipkart bought smaller rival Letsbuy.com that sells consumer electronics. Across the country, nervous online start-ups are shoring up their capital base or acquiring new customers through strategic acquisitions as they prepare for the imminent entry of the world's largest online retailer, Amazon. Apart from launching a comparison shopping site junglee.com, Amazon has also just received government permission to set up its own courier service in India.
The country's e-commerce market is seeing a huge spurt in growth, with close to 100 million Indians now online. An Avendus Capital report estimates the Indian e-commerce markets will more than double in size to $24 billion by 2015.
Supam Maheshwari and Amitava Saha, who launched First Cry in December 2010, raised $4 million in a first round funding from SAIF in April 2011. Two months ago they launched Goodlife, a beauty portal that cross-sells to the same target customer that Firstcry addresses--young parents.
"It is a very well designed strategy for us that we want to be in a niche and we want to grow that niche and build customer trust," said Maheshwari, an IIM-Ahmedabad graduate who co-founded e-learning company Brainvisa Technologies in 2000 and sold it to Indecomm Global Services for about $25 million in 2007. Saha, from IIM-Lucknow, led sales and business operations at Brainvisa.
The company plans to use the funds from the latest round to increase its product catalogue and invest in logistics, including adding new warehouses. At present, Brainbees operates one warehouse in Pune.
For IDG, which invests from a $150 million fund in India, this is the fourth online commerce investment, all of which have been in single-product retailers. Last year it invested $4 million in Delhi-based Valyoo Technologies, which runs Lenskart.com, an online portal selling prescription eyewear.
There have been a slew of recent investments in single-product e-retail companies. Last month, Jewels Online Distribution India, which runs jewellery portal, Bluestone.com, raised $5 million from Accel Partners, Silicon Valley Bank and serial entrepreneur K Ganesh. In January again, Bright Lifecare, which runs healthcare e-retail portal Healthkart.com, raised $7.5 million from Omidyar Network and existing investors Sequoia Capital and Kae Capital.
Specialised products in apparel and jewellery are especially attractive to customers in smaller towns and cities where it is rare to find stores that stock such a wide variety of these items. These aspirational buyers bring in the dominant chunk of sales for online retailers. Over 60 % of sales for First Cry comes from smaller towns across India.
"Delivering a pack of diapers is different from delivering a mobile phone as consumer electronics brands are already established and are accessible in any part of the country. But that is not the case with specialized items," Mukul Singhal, vice-president of SAIF Partners, said.
SAIF has emerged as one of the most prominent investors in the Indian e-commerce industry with combined early stage investments of over $50 million across companies such as MakeMyTrip, Just Dial and One97 Communications. The fund is expecting combined return on investment of $700 million from these deals.
IDG's US arm invested in BabyCenter, which sold baby care products, in the late 1990s. It went on to become one of the best exits for IDG when BabyCenter got acquired by eToys for $150 million worth of stock. In China its investments include online retail major Dang Dang and search giant Baidu.
"With internet user numbers hovering around the 80 million mark, Indian e-commerce inflection is around the corner," Arora said.