E-commerce space to witness a lot of growth: Thornton

Last Updated: Sun, Aug 12, 2012 20:02 hrs

The e-commerce market attracted private equity/venture capital deals worth $410 million in the first half of this year, driven by category leaders, with the sector likely to grow "disproportionately" in this manner, says a report.

According to audit, tax and advisory firm Grant Thornton, the total PE/VC deal value in the e-commerce space amounted to $410 million through 32 transactions in the first half of this year, wherein the average transaction size more than doubled as compared to the same period last year.

A large portion of the funding was taken by category leaders with the top three transactions contributing around 62 per cent of the deal value. According to the report, Flipkart.Com has raised more funding so far than any of its peers in the same space. Similarly, in the deals and discount space, Snapdeal.Com has raised more funding than others.

"The market will, in fact, grow disproportionately for the top two or three firms, while the rest simply may not be able to compete," the report said. Meanwhile, "mortality rate" is increasing in the sector. In late 2011, Bangalore based e-commerce site Taggle.Com discontinued its online products retail business. Taggle had raised funding commitments of USD 9.25 million as seed investment, the report said. Others that have wounded up in the space include,Nammagroceries.Com which has stopped its groceries initiative, Harisabzi.Com and Subzimandi.In.

"We expect this rate (of mortality) to increase in 2012, as Series B funding is drying up for companies that have not been able to deliver traction," Grant Thornton said. Interestingly, India, with nearly 125 million of internet users, is the third largest country in terms of internet population after China at 500 million and the US at 220 million. Moreover, by 2014, India is expected to exceed the US in terms of internet population.

Almost all categories of the internet are under penetrated and will continue to see growth for the next one decade. "Premium will shift back on great teams with propensity to innovate, rather than the best search engine marketer," Grant Thornton India Client Service Director, Merger and Acquisition Ram Kewalramani said.

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