Present day – The end of the tango

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At roughly the same time, Bahl and Bansal sold shares of their own, amounting to Rs 80 crore each ($12 million) for Rs 1,40,000 per share (~$2100).

If NEA-Indo-US sold their 8,274 shares at a premium of 50% to this same rate (Bahl and Bansal sold their shares at a company valuation of $4 billion and the company’s peak valuation was $6.5 billion), they would have netted Rs 188 crores ($28.52 million). This figure of 8,247 shares represents 30% of NEA-Indo-US holding, and the fund still owns 19,594 shares. On the other hand, Kalaari Capital Partners sold none of the 912 shares it had acquired the previous year.

Series “Bust and Below” (2016-17) – The shotgun marriage that wasn’t consummated

If Snapdeal’s rise to the top was dizzying, its fall from grace was just as swift. On one hand, it was locked in a fierce and expensive battle with Flipkart and Amazon for e-commerce in India, and, on the other, their relationship with their investors had gone completely pear-shaped.

Nikesh Arora’s exit from SoftBank robbed Snapdeal of their internal champion. From that point on, not only was SoftBank reluctant to invest further in Snapdeal, it had written down the valuation of its holding in the company and had mandated that the company get acquired by Flipkart in a deal valued at $1 billion. For a startup that was once valued at $6.5 billion and had raised $1.7 billion in total funding, this was a sharp fall, but for investors like Kalaari, it was a mortal blow.

Since the deemed acquisition value was well below the funding raised, it would stand to make nothing from the sale. However, Kalaari had a board seat and a blocking right in its kitty and Kola managed to parlay this into a side deal with SoftBank where they would receive $30 million for permitting the sale to go through. While this was hardly ideal, it was still better than the alternative of not making anything at all.

Blocking out the sale of the company

Unfortunately for Kalaari, Bahl and Bansal blocked the sale of the company and decided to keep the company independent. Kola stepped down from the company’s board, and in an unusual move, publicly berated the founders for not going through with the deal. She went on record to say that she was “extremely disappointed and shocked by the founders’ disregard for investors and employee interests”.

Over the past few months, Kalaari has been engaged in a dialogue with Bahl to give it an exit, and if sources are to be believed, this deal has now been finalized. Snapdeal will buy back Kalaari’s 8% holding in the company for approximately Rs 70 crore (~$10 million).

If this deal does go through, we finally will have a report card for Kalaari’s investment and performance in Snapdeal:

Total amount invested: $19.56 million

Total exit* (assuming a share price of Rs 2,27,500 for the secondary): $39.12 million

A return of 100% in total. Not great, but not bad either.

But there is a catch.

So while NEA-Indo-US did well, Kalaari Capital Partners II will take a whopping 90% haircut on its investment.

The takeaway here is that even when it looks like a VC firm did almost everything right while investing in a startup—pick the right deal, follow on at the right time, take a second exit when possible—it can still end up in a position where a particular fund vehicle does poorly.

Of course, hindsight is always 20:20, and it would be unfair to judge Kola and co harshly for ending up with a sub-par scorecard. Also while Snapdeal might not have delivered a blockbuster cash return to the firm, it was instrumental in Kalaari being able to raise a follow-on fund, Kalaari Capital III—of $290 million in 2015—while simultaneously burnishing the Kalaari brand (Kola was named investor of the year by Economic Times in 2015).

 

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