Money raised by internet companies dropped to a three-year low in the December quarter, with less than $300 million coming in. In fact, funds were hard to come by in 2016 and the $2.7 billion that was invested was 50% lower than the amount invested in 2015. For a perspective on how cautious investors have become, they had infused $2.6 billion in a single quarter in the three months to September 2015.
According to Jefferies, e-retailers will focus on profitability this year; the brokerage believes consolidation in the sector would continue.
Market watchers point out the slowdown in funding is not surprising given the large losses posted by e-commerce players in 2015-16. A clutch of 14 companies, which included e-retailers, furniture sellers, travel portals and food ordering and delivery players, reported losses of R10,670 crore in 2015-16, up 138%, according to Kotak Institutional Equities.
While players were able to grow their top lines, the increase in FY16 was similar to that in the previous year, indicating that businesses were not being scaled up quite as fast as expected. In fact, going by the sharp jump in expenses on advertising and promotions, revenues were heavily dependent on these.
The share of e-tailing in the fund-raising in 2016 shrank from a peak of 74% in 2014 to 37%. Among the segments that gained share were travel, social networks, services, fintech and classifieds. For instance, Hike was able to pull in $175 million while Ibibo attracted $250 million. Mobikwik raised $90 million and Byju’s Classes mopped up $140 million.
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Analysts at Jefferies say the spaces that are likely to attract infusions this year are fintech and online content. According to PwC, the funding of fintechs — across the globe — more than doubled in 2015 to $12.2 billion up from $5.6 billion in 2014. In India, investments rose to $1.2 billion in 2015 from $145 million in 2014.
Post-demonetisation, electronic transactions have been on the rise and the increasing popularity of channels such as the Unified Payments Interface, together with the larger number of smartphones in use, is expected to further digital transactions. India’s payments market (excluding interbank clearing and CCIL) is expected to see rapid changes in payments channels while growing at around 12% compounded, from an estimated $15.5 trillion in FY15, Bank of America Merrill Lynch noted in a report.