By Biswarup Gooptu
NEW DELHI: Online retailers that sell only a single category of products are fast gaining investor attention as they require lesser capital to grow than multi-brand portals.
Termed as vertical ecommerce portals, these ventures which sell specialised products for healthcare — ranging from prescription drugs to nutritional supplements and spectacles, baby care products and jewellery—cater to customers who buy high-value products at frequent intervals.
The higher margins earned by these companies is making them attractive for investors who have put in a total of about Rs 664 crore so far this year. "We aim to build a valuable company that meets the investors' strategy of backing sustainable ventures," said Prashant Tandon, founder of Healthkart.
The Gurgaon-based company, which sells consumer healthcare goods as well as prescription drugs, raised $14 million (Rs89.3 crore) funding from Intel Capital and existing backer Sequoia Capital earlier this year.
Founded by Stanford and Harvard Business School graduates Tandon and Sameer Maheshwari in 2011, Healthkart has grown from offering management software to physicians to now directly retailing healthcare products to consumers. With about 50,000 transactions a month at an average spend of Rs2,000, the company is clocking a monthly revenue of about Rs 10 crore.
"These companies do not require the same amount of funding as say, a Flipkart, as they use capital more efficiently while providing a varietety of high-margin products, for more frequent purchases," said Karan Mohla, vice-president at IDG Ventures.
"This makes them very good value creators," said Mohla whose fund has invested in New Delhi-based Valyoo Technologies, which runs portals such as Bagkart and Jewelkart.
Founded by former Microsoft employee Peyush Bansal, the company raised $10 million (Rs 63.8 crore) for its eye-care retailing website LensKart from UTV founder Ronnie Screwvala's Unilazer Ventures and IDG Ventures in February. LensKart sells about 1,000 pairs of eye glasses daily, across 1,500 cities and earns about Rs 4.5 crore in revenues monthly. "It's a much more complex market we operate in, not a price-oriented one that the multi-category ventures are in. You cannot get away with just offering discounts," said Bansal.
Investor interest in backing such ventures is growing as the broader ecommerce industry is quite crowded. "There is a certain amount of saturation in the multi-category space and one can't write small cheques in the space anymore," said Rahul Khanna, managing director at Canaan Partners, which holds a 25% stake in multi-category ecommerce firm Naaptol.
"The next best thing is to identify ventures that focus on particular categories," said Siddharth Bafna, partner at investment bank Lodha & Co. Investors are also focusing on more than just revenue generation by e-commerce ventures to identifying companies that have shown a clear path to profitability.
Both LensKart and Healthkart have targeted 2015 and 2016, respectively, to be in the black. In April this year, Mumbai-based online baby care company BabyOye also raised $12 million (Rs76.6 crore) from an investor consortium led by Helium Venture Partners, and which included Tiger Global and Accel Partners. The company is expected to reach a turnover of Rs250 crore by 2015.
Specialised e-commerce portals are also looking to provide a range of services to not only attract new customers. While Healthkart relaunched its drug search engine Healthkart Plus as an online marketplace for prescription drugs earlier this year, LensKart has entered the offline mode as well, signing franchisees across the country.
"The ventures are starting to build critical mass, and investors believe a number of them have the potential to become multi-category players," said Canaan's Khanna.
Analysts are of the view that a combination of fewer investors and fewer quality assets makes this a good time to invest in such companies now."However, there won't be too many of them, and investors will have to identify them," said Pragya Singh, associate vice president retail consultancy Technopak.