Death of a Unicorn: Inside the fall of Snapdeal, once a $6.5 bn startup

Sunny Sen June 13, 2017 22 min

Story Highlights

  • Flipkart and Snapdeal are in talks for a merger, which is being orchestrated by SoftBank, Snapdeal’s largest investor, and Tiger Global, Flipkart’s biggest backer
  • Lack of focus, fast-changing targets, successive senior management exits, and untimely expansion were among the fatal mistakes Snapdeal’s founders made
  • SoftBank played a prominent role in running Snapdeal into the ground, say sources. The funder not only didn’t let Snapdeal raise more capital, but also didn’t make good repeated promises of fresh funds

Question: How did Snapdeal, once among India’s top two contenders to ecommerce dominance, flame out so spectacularly over less than 12 months?

Answer: A missing focus on execution and shifting goalposts, a wild bet at creating an ecosystem of apps around its core ecommerce platform, and senior exits in quick succession. That is what we know so far. Add to this another big reason for Snapdeal’s failure: the untold role of financier SoftBank in the fiasco. It has emerged that the Japanese conglomerate pushed Snapdeal into spending all its money, didn’t allow it to raise more capital, declined to write out funds after repeated promises, and finally cornered it into a merger with Flipkart.

That, in short, is the Snapdeal story. Read on only if you’re interested in the saga with all the twists and turns behind the Snapdeal story.

ASF Centre, Udyog Vihar, Phase-IV, Gurugram: The environment inside Snapdeal’s headquarters is grim — employees are at work on their computers, some have headphones on, some have a phone cradled between shoulder and ear. No one is talking. Business meetings are few, says one. So is business. The office spa, creche and gym are no longer operational. But, yes, the library is still open.

Many colleagues have been given the sack: employee headcount is down to less than 2,000 from 6,000 a year ago. Cofounders Kunal Bahl and Rohit Bansal have promised employees publicly that the No 1 priority of the top management is the well-being of employees. The employees are waiting to be told terms of the “well-being”.

The mood is starkly different from what it was in July 2015, when the team moved from Okhla to fancy digs in Gurugram (see pictures here). Snapdeal had grown almost six times in gross merchandise value, or GMV, and the employee headcount had quadrupled. Three buildings were leased to house the workforce in what was then called Gurgaon. (GMV is the total value of goods sold on the platform, not including discounts and promotions.)

“Though the salaries are coming, all of us here have lost our morale. There is so much negative news in the newspapers every day. We never thought that this day will come,” says an executive in her mid-30s. She and her five colleagues, as also six former Snapdeal executives, interviewed for this story, all wanted to stay anonymous. Most of them worked closely with chief executive officer Bahl and chief operating officer Bansal.

“Though the salaries are coming, all of us here have lost our morale. There is so much negative news in the newspapers every day. We never thought that this day will come” — a Snapdeal executive

Snapdeal was the second largest ecommerce firm after Flipkart just over two years ago. Today, it’s up for sale.

A deal, sources said, is being finalised with Flipkart at a firesale price of $1 billion. SoftBank, Snapdeal’s biggest shareholder, is leading discussions with Tiger Global, the top investor in Flipkart, for the merger of the two companies. Term sheets have been exchanged and due diligence is on with the likes of Goldman Sachs (on the Flipkart side) and Credit Suisse (representing Snapdeal) engaged for the purpose.

Also read: The winners and losers in Snapdeal’s $950 million sale to Flipkart

The sale price is less than one-sixth of Snapdeal’s peak valuation of $6.5 billion in early 2016. That is, for every dollar put into the company, investors are receiving just 15 cents.

With each passing day, meanwhile, Snapdeal is running out of cash. Earlier in May, it received Rs 113 crore from Nexus Venture Partners and personal contributions by Bahl and Bansal themselves to keep the company going.

What a downfall it has been for the unicorn, as companies valued more than $1 billion are referred to. Snapdeal has been often called a cat with nine lives for the number of times it has changed its core business. (Read this story by author and former journalist Suveen Sinha, who covered Snapdeal’s journey in depth in his book Tip of the Iceberg in 2016.)

“Snapdeal’s share would be down to 12%, while Amazon and Flipkart must be holding 35% to 36%, each” — Sandeep Aggarwal, founder of ShopClues and Droom  

In August 2015, Bahl told The Economic Times that by March 2016, that it will beat Flipkart in terms of sales of GMV. Snapdeal’s market share in 2015 was 26% (Flipkart’s was 45% and Amazon’s was 12%). Investment bank Morgan Stanley had rated Snapdeal as one of the most capital efficient startup in India in 2015. Its GMV to capital raised stood at 3.2. ShopClues was the only one ahead at 3.8. Flipkart’s ratio was 2.4 and Amazon India’s 1.

Snapdeal’s market share has more than halved. Says Sandeep Aggarwal, founder of ShopClues and Droom, who spent a decade in the US as a Wall Street analyst studying internet companies, “Snapdeal’s share would be down to 12%, while Amazon and Flipkart must be holding 35% to 36%, each.” Aggarwal made this estimate early in May; Snapdeal’s share would fallen lower now.

Expansive, expensive

That Bahl and Bansal are ambitious is well known. But even by those standards, a bet they made on creating a family of apps and other businesses to address a chunk of offline consumption was audacious and, in hindsight, foolish. “They wanted to build the next Tata Group or something like an HDFC Bank in size and scale,” said a former employee, who had joined Snapdeal from a multinational consumer goods company. This person will be referred to as Former Employee #1 later on in this story.

Bahl had the Facebook copybook as the basis of his bundle of apps and services strategy. Facebook has Whatsapp and Instagram among several acquisitions it made to build the platform it is today. “Social is a strong indicator of how ecommerce will evolve. Not a monolithic platform, but an ecosystem, or a set of apps,” he told author Sinha.

Snapdeal's acquisitions and investments over the last four years
Snapdeal’s acquisitions and investments over the last four years

So, under the Snapdeal umbrella was wallet company FreeCharge, Shoppo (it allowed buyers and offline sellers to chat and close a deal), services like lending, travel booking and food delivery, unicommerce (that helped offline sellers manage inventory and sales online), government partnerships, highend fashion portal Exclusively, lending for sellers, and a lot more.

Of these, FreeCharge was perhaps the most expensive. Snapdeal paid $400 million in April, 2015 for Kunal Shah-headed digital payments company. The idea was cross-sell on each other’s platforms. FreeCharge had 30 million customers who used it to recharge phones and pay bills. Snapdeal has some 50 million registered users.

Snapdeal had also made an investment of about $30 million in PepperTap, the grocery marketplace, which was later supposed to be integrated into Snapdeal. Unfortunately, PepperTap, which was backed by Sequoia Capital, Saif Partners, among others, ran out of money and was shut down.

Also read: India’s first Unicorn InMobi is staring at an uncertain future

In February 2016, based on interviews with the company, Morgan Stanley estimated that all the businesses in the Snapdeal fold had an addressable market of some $1.75 trillion. To put that in perspective, India’s retail market today, all put together, is about $600 billion. The pitch was clear: we are onto something much bigger and beyond online retail. “In their view, the online opportunity could be substantial if 10% of this overall consumption pie moves online by 2020,” Morgan Stanley wrote in its India Internet Primer — Champions of Online Retail report.

“Kunal (Bahl) said all the right things, but did all the wrong things… Getting consumption online was a good idea, but the question was when is it the right time to do so” — the CEO of one of India’s unicorn internet firms

The timing was wrong and the execution capability to pull it off was missing. “Kunal (Bahl) said all the right things, but did all the wrong things… Getting consumption online was a good idea, but the question was when is it the right time to do so,” said the CEO of one of India’s unicorn internet firms.

Internally, too, the perception was that Snapdeal was being plumped for investors. “Many of things that Kunal announced was merely posturing for the investors — even the announcement that it will overtake Flipkart in 2016,” said a second former employee, who worked closely with Bahl and Bansal. Let’s call him Former Employee #2.

Somewhere along the way, Snapdeal also lost its startup chops and culture. “That was there till the company was in Okhla… (After moving to Gurugram) it started functioning like a big company with too many businesses to handle, but the founders did not have the experience of running a conglomerate,” added Former Employee #2.

The nimbleness and laser sharp focus of a successful startup, this employee said, slowly faded away. Large teams were hired from premier institutes such as Indian Institute of Technology (IITs) and Indian Institute of Management (IIMs) — ballooning the salary budget. Audacious targets were made but were quickly left behind without accountability when they were not met. There were long meetings on strategy and planning but little focus on execution.

Audacious targets were made but were quickly left behind without accountability when they were not met. There were long meetings on strategy and planning but little focus on execution

Bahl also placed a lot of importance on managing the image of the company through the media. His weekly calendar had two meetings with the public relations team pencilled in, according to a third former employee (Former Employee #3). “There were times when a delivery goof-up happened and it got reported, and the PR team was pulled up,” this employee said.

Others complained that Bahl would change plans in quick succession in reaction to what Flipkart or Amazon did. One such example is the Diwali of 2015. Diwali sales are a big opportunity to jack-up GMV of sales at ecommerce companies. Snapdeal had planned that it will offer sale every Monday through the festive season. The entire team had geared itself to this plan. But, when it became clear that Flipkart and Amazon were going to do sales four to five days running, Snapdeal changed tack and decided to do a five-day sale.

Things get hairy

Cut back to March 2015, months before Bahl told the world in The Economic Times interview that Snapdeal would overtake Flipkart. By that time, Snapdeal had some clear advantages. It was highly penetrated in tier II and III towns, especially in north and east India. About 7% of the company’s sales came from the Northeast, where no other ecommerce company had penetration, according to the Former Employee #1 quoted earlier. “In other parts of the country, also, we were reaching all pin codes faster than others,” this employee said. The company had crossed the mark of over 100,000 orders a day in March that year.

Also read: Mu Sigma’s summation of maladies and Dhiraj’s fight to fix it

That was when Bahl and Bansal set up something called “BHAG”, which means “to run” in Hindi but was an acronym for “big hairy audacious goal”. And, what was the big hairy audacious goal? To overtake Flipkart and be number one in Indian ecommerce.

That was when Bahl and Bansal set up something called “BHAG”, which means “to run” in Hindi but was an acronym for “big hairy audacious goal”. And, what was the big hairy audacious goal? To overtake Flipkart and be number one in Indian ecommerce

Big jumps require big bets. Bahl and Bansal decided to focus on tier I cities, remembers Former Employee #2 — putting Snapdeal square up against Flipkart and Amazon, who were also trying to consolidate or get traction in India’s top cities. In April 2015, the goal changed from GMV to number of orders. Then, the focus was on consumer behaviour (what they were shopping and what is the retention rate). And, then the lens moved to customer satisfaction.

Not only were mid-level and junior executives confused, the leadership team that consisted of all business heads was confused, too.

By now Snapdeal had bought FreeCharge and came the task of integrating two completely different platforms. “Trying to mesh these two companies at such an early stage was confusion number one,” said Former Employee #1. In Bahl’s mind, Snapdeal and FreeCharge was like Alibaba and Alipay.

In his scheme of things, the missing piece in the Indian jigsaw was the equivalent of WeChat, the Chinese instant messaging platform, which has ecommerce built inside its app. Bahl wanted that built, too. “But it never took off from the beta stage,” said Former Employee #1. The project was scrapped.

Some employees said that they lost count of the vision statements. “There was a time when the metric was changing every month, from largest marketplace to largest seller base to best NPS to largest catalogue… There was no clarity, where to take the business,” said yet another former employee (let’s name this person Former Employee #4). NPS stands for net promoter score, a metric that measures willingness of one buyer to recommend a product or service to another.

“There was a time when the metric was changing every month, from largest marketplace to largest seller base to best NPS to largest catalogue… There was no clarity, where to take the business” — a former employee  

“Once the metric shifted, no one bothered about what happened to the earlier one,” added Former Employee #4.

That was not the case earlier — every single metric was tracked on a monthly basis and this helped achieve targets. One such target was faster delivery in 2014. Snapdeal called it “Mission 24”, which aimed at shipping 75% of the products within 24 hours. The team overachieved, shipping out (or dispatched from warehouses) 80% of the orders within 24 hours.

Bahl also wanted to own the entire logistics — he invested $20 million GoJavas, a logistics firm. He also build Vulcan Express, an inhouse logistics arms that sucked in Rs 150 crore, which was later opened for third party delivery.

Leadership cred lost

“I feel bad to see Snapdeal in such a situation,” said Former Employee #2. “Bahl is well-meaning person… but he thought that he had arrived in life.”

Indeed. Bahl and Bansal’s salaries were the highest in the industry — very atypical of founders of loss-making companies. According to Firstpost, both Bahl and Bansal, were paid Rs 46.5 crore each, including stock options, in 2014-15.

There was at least one instance when they liquidated their stock. According to a filing with the Registrar of Companies, the founders sold shares worth Rs 80 crore each to Ontario Pension Fund in late 2015. In total, they would make a lot more, according to a report. Bahl would make Rs 418 crore, and Bansal, Rs 319 crore.

Indeed. Bahl and Bansal’s salaries were the highest in the industry — very atypical of founders of loss-making companies. According to Firstpost, both Bahl and Bansal, were paid Rs 46.5 crore each, including stock options, in 2014-15

This did not go down well with the leadership team. “Kunal did not let anyone else liquidate. Vijay Ajmera had to find an external investor who would buyout his shares,” said Former Employee #2. Ajmera was the senior vice-president Capital Assist, the financial services arm at Snapdeal and left the company in June 2016.

Snapdeal’s bloody chase of Flipkart for market share continued all this while. “Snapdeal’s pull definitely was lower prices of products,” said another former employee (Former Employee #5). Overspending was becoming a problem. Snapdeal has raised less money ($1.56 billion) compared to the $3.15 billion that Flipkart had raised by April, 2017.

Snapdeal cofounder and CEO Kunal Bahl during the company’s pre-Diwali rebranding in 2016

And, the market started changing in the beginning of 2016 — inflow of funds turned to a trickle. Bahl shifted the focus to net margins, which would require the entire operations to change.

The confusion led to a series of exits — Saurabh Bansal, heads of category; Ashish Chitravanshi, senior vice president of operations; Srinivas Murthy, marketing head; Abhishek Kumar, head of corporate development; Farheen Akhtar, corporate communications; Tony Navin, head of partnerships and strategic investments; Sandeep Komaravelly, Shoppo; and Govind Rajan, head of wallets business, FreeCharge. High-profile others such as ex-chief product officer of Bharti Airtel Anand Chandrasekaran had quit earlier.

“Investors didn’t care. It was always what Kunal said, and in all this, the company failed to retain talent. It was the failure of the founders, board and the HR department” — Former Employee #5  

“Investors didn’t care. It was always what Kunal said, and in all this, the company failed to retain talent. It was the failure of the founders, board and the HR department,” said Former Employee #5.

Listen in: Outliers 14 – Sameer Guglani of Morpheus Gang on why Indian unicorns are facing the heat

Over time, even the next rung below Bahl and Bansal started taking what they said with a pinch of salt. In an October 2016 quarterly meeting of the leadership team, Bahl was his usual self selling the stars to 50 senior executives. “If we will stick on this path we will double the size of the business to $13 billion,” he said, according to a person present at the meeting.

No one believed Bahl, the person said.

But, what they didn’t know was the Bahl’s bravado masked a bruising tug of war with a powerful actor in the Snapdeal story: SoftBank.

Snapdeal’s big blow: Nikesh Arora’s exit

Some senior executives still at Snapdeal said that it was SoftBank that is responsible for Snapdeal being pushed to the brink as it didn’t keep its word on repeated promises of funding.

This, they say, started after president and chief operating officer Nikesh Arora’s abrupt departure from SoftBank in June 2016. Arora was handpicked by SoftBank founder and CEO Masayoshi Son with the intention that the Indian executive would succeed him. Arora was the one who orchestrated SoftBank’s $627 million investment in Snapdeal in October 2014 and a second one as an existing investor in a $500 million round led by Alibaba in August 2015.

Some senior executives still at Snapdeal said that it was SoftBank that is responsible for Snapdeal being pushed to the brink as it didn’t keep its word on repeated promises of funding

Arora was Bahl’s mentor. He was religious about having at least one meeting with Bahl and Bansal every month, spending half a day with them to understand strategy and operations. The Snapdeal founders looked up to Arora and often sought direction based on his international experience building search giant Google Inc’s revenues as its chief business officer.

August 21, 2015: About 10 months before he quit SoftBank, Arora warned Bahl about the coming winter. In a mail to Bahl that afternoon, he said he saw the global markets (and the VC business) looking down for the coming six months. He asked Bahl to cut down on frivolous spending and focus on unit economics, and build a sustainable business. FactorDaily has seen this email.

Bahl forwarded Arora’s mail to the leadership team with a cover note which said, “time for frivolous spending is over”.

Things shaped up well. “Between November 2015 and August 2016, we reduced our monthly burn by half,” said a source who is still with the company — from Rs 200 crore a month to Rs 100 crore. (Let’s call him Source #1.) As a result, the gross margin percentage rose to 18% from 5%.

About 10 months before he quit SoftBank, COO Nikesh Arora warned Bahl about the coming winter. In a mail to Bahl, he said he saw the global markets (and the VC business) looking down for the coming six months. He asked Bahl to cut down on frivolous spending and focus on unit economics, and build a sustainable business  

Even after Arora’s exit, Bahl continued to drive costs down. Monthly expenses, including salaries, stands at Rs 40 crore today.

Arora, while he was at SoftBank, had promised that Snapdeal would not have to worry about funds. Former Employee #1 said that FreeCharge was supposed to be funded for three years, and “we were given the understanding that we will not have to go out to raise money.”

That promise was forgotten at SoftBank. Soon after Arora left, Bahl started scouting for fresh funds for FreeCharge. He had even convinced investors to come on board, according to people who know about the talks then, but SoftBank did not let Snapdeal to raise money from others.

Every month, the big three — Amazon, Flipkart and Snapdeal — were spending $20 million to $30 million each and money was drying up at the Bahl-helmed company. Bahl, sources said, repeatedly got investors to pony up capital for Snapdeal, too, but SoftBank wouldn’t give its assent. Being the largest stakeholder, it was important to get a nod from the Japanese.

Arora had promised that Snapdeal would not have to worry about funds… That promise was forgotten at SoftBank. Soon after Arora left, Bahl started scouting for fresh funds for FreeCharge… but SoftBank did not let Snapdeal to raise money from others  

In June, 2016, Ebay and Snapdeal were in discussion for exactly the same deal that was done with Flipkart, but SoftBank didn’t let that happen. “The term sheets were exchanged. For two months executives from both the companies had discussions on merging the business, but as soon as Nikesh (Arora) left, the deal fell through,” said Source #1.

If the deal had gone through, Ebay would have merged its business and pumped an additional $300 million into Snapdeal, like it did in Flipkart.

Then, in August 2016, Foxconn wanted to invest $300 million in FreeCharge, said Source #1. SoftBank told Bahl that it had kept a billion dollars for Snapdeal and that he shouldn’t have further discussions with Foxconn.

Bahl backed out in good faith but the money did not come despite multiple reminders, added Source #1. So, Bahl started to scout for funds from others once again. In December 2016, PayPal offered $200 million to pick up equity in FreeCharge on an $800 million valuation but even that offer was turned down. “SoftBank offered to give the money and asked the founders to turn down PayPal’s offer,” said Source #2, who’s still at Snapdeal.

Then, in August 2016, Foxconn wanted to invest $300 million in FreeCharge, said Source #1. SoftBank told Bahl that it had kept a billion dollars for Snapdeal and that he shouldn’t have further discussions with Foxconn  

In January this year, SoftBank’s Son himself stepped in. According to Source #2, he promised to pay $600 million for FreeCharge and merge it with Paytm for a 15% stake in it. Another $400 million would be put into Snapdeal as a separate investment. This promise was captured on a postcard-sized piece of paper, which has both Son’s and Bahl’s signatures. FactorDaily reviewed this document.

Eventually, SoftBank made a $1.4 billion investment in Paytm and is pushing for Snapdeal’s merger with Flipkart.

When contacted, a SoftBank spokesperson said: “We don’t comment on speculation and conjectures.”

Blow hot, blow cold

Snapdeal had reduced expenses in the months ahead of Diwali in 2016 (October 29, 2016) but the festival of lights is something you scrimp on promotions at your own peril if you are in the retail business.

The company spent Rs 200 crore on rebranding just before Diwali — a new logo and a new jingle were readied, and a lot of television, radio and newspaper spots were blocked.

“Between August and December, we went all guns blazing — rebranding, huge discounts and advertising. The Diwali was better than we expected, but in these months spent what we would spend in two years,” said a third source at the company (Source #3).

The company spent Rs 200 crore on rebranding just before Diwali — a new logo and a new jingle were readied, and lots of television, radio and newspaper spots were blocked

Snapdeal’s coffers were drying up fast but that didn’t stop SoftBank from prodding the Indian company to step on the pedal. Barely a month after Diwali, a SoftBank official emailed Bahl that Snapdeal “should spend $50 million in December” and be “aggressive in the market”. The company continued with its promotions and heavy discounts.

Bahl had hoped that with higher GMV and better sales, SoftBank would put in the money. Snapdeal needed just $120 million to $150 million to turn profitable, said Source #2.

That money was not to come.

Also read: Flipkart’s Big Binny Days

Finally, in February, Snapdeal showed its first signs of downfall. It laid off 600 employees. Within a week Bahl and Bansal wrote to employees accepting operational blunders. “Did we make errors in our execution? No doubt about that. Over the last two to three years, with all the capital coming into this market, our entire industry, including ourselves, started making mistakes. We started growing our business much before the right economic model and market fit was figured out,” Bahl wrote in the letter.

“Over the last two to three years, with all the capital coming into this market, our entire industry, including ourselves, started making mistakes. We started growing our business much before the right economic model and market fit was figured out” — Bahl in a letter to employees  

The letter, still, showed hope. “These are tough times, no doubt. But, I am supremely confident, that like we have done before as a team, we will prevail… Let’s remember – GMV is vanity, Profit is sanity… I am glad that we have picked our path clearly – of building a profitable business over the next two years. With fierce passion and purpose, let’s blaze a trail like leaders do,” he wrote.

But, the body blow to Snapdeal this time was a serious one. Snapdeal was so cash-starved that he was even ready to take a debt of $150 million. Seller payments were piled up since December 2016 forcing some of them to renege on interest outstanding to lenders such as State Bank of India. As embarrassing it was Bahl and Snapdeal, it took the company until mid-May to clear pending seller dues.

But, the body blow to Snapdeal this time was a serious one. Snapdeal was so cash-starved that he was even ready to take a debt of $150 million. Seller payments were piled up since December 2016 forcing some of them to renege on interest outstanding  

Company insiders said that Bahl repents that he listened to SoftBank and overspent. In July, 2016, according to Source #2, Snapdeal had Rs 2,700 crore in the bank, which would have covered about two-and-half years of operations at the rate of expenses then.

Today, the cash in the bank is almost over, and Bahl and Bansal are waiting for the final decision to be taken for the merger between Flipkart and Snapdeal.

For all his bitterness, Bahl goes to the office every day unless he is out of town. “Kunal (Bahl) has a plan, where a non-Amazon marketplace can thrive. There is no value building another Amazon-like business. He has a 10-year plan (for Snapdeal), if the deal between Flipkart and Snapdeal falls apart,” said Source #3.

Bahl might have a plan, but it is almost sure that it can’t be carried through within Snapdeal. Maybe, Bahl and Bansal will float another company — yet another pivot in their careers of over 10 years.


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.