Capital is the key constraint for any start-up, as they do not have traditional sources of funding (public markets, banks). This becomes more relevant as some Internet companies do not have a robust monetization model.
Our study shows that capital is not really a constraint for the Indian Internet sector. We estimate that investors (angle, VC, PE) have invested ~US$6bn in the sector in the last three years. The pace of investment has only increased with ~US$3bn announced in the last three months alone (US$1bn investment in Flipkart, US$2bn to be invested by Amazon in its India business).
Key requirements for funding include acquiring customers either through discounts or marketing campaigns, warehousing and building a logistics network, scaling up the business (read headcount) as the business expands, acquisitions and some companies have difficulty with monetization at an early stage.
A major portion of the funding is focused on building warehouses and logistical facilities, which are critical for a good customer experience; this would become a key competitive differentiator longer term and help gain sustainable market share. Some companies are also rolling out offline stores, which can be used to educate users, increasing their comfort level.
Media reports indicate that Jabong has launched offline stores in areas central to a group of villages where people can understand and adapt to eshopping. These pilot programs have been done in cities such as Amritsar, Jalandhar and Patna. Myntra also plans to open physical stores in Bangalore, Delhi and Mumbai over the next 18 months.
However, it is not as if all companies are able to raise funds ? media reports indicate that Yebhi, a five-yearold online retailer, has been scaling down its employees. It started as an online footwear store in 2009 but changed in 2011 to fashion and apparel and then became a marketplace for competitors.
