Many large and emerging businesses in the startup ecosystem of India those include Ola which is a cab-hailing service, Swiggy which is an online food ordering and a delivery startup are thus following the footsteps of Flipkart as they explore setting up the group company structure to enhance the valuations. From the last few years, some of the startups those include Ola and Paytm have even attempted to acquire of even build big businesses with strong brand recall, in an attempt to convince the investors for valuing them at some higher price.
Flipkart has even offered the blueprint so that they can replicate the entrepreneurs and the investors. “If you have multiple large businesses with their own CEO (chief executive officer), then a group structure does make sense (like Flipkart, Myntra and PhonePe),” said a partner at venture capital firm Accel Partners India, Anand Daniel. Flipkart in the month of May even agreed to sell nearly 77% of its company to Walmart Inc. for $17 billion thereby valuing the startup at $ 21 billion. The valuation of Flipkart was boosted by the units, fashion retailed Myntra and the payments application PhonePe.
Myntra has comprised $5.5 to 6.5 billion of the total $ 21 billion value when the PhonePe was valued at nearly $1 to 1.5 billion. The group company structure has allowed Flipkart for improving its total valuation and give enough focus to each of its business. It is also reported that, the likes of Ola are commencing to follow the similar model. Ola is also studying its organizational structure for leasing its business which is recently acquired by the Food Panda. Ola Money and its international and electric vehicle units all operate as separate, independent businesses.
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“From a valuation and scale perspective, it does make a lot of sense for startups to adopt such structures and create independent businesses which are run by their own CEOs. And that is starting to happen with increasing regularity at large Indian startups,” said a partner at a domestic venture capital firm requesting anonymity.
The quickest local startup to rack up the billion dollar valuation, Swiggy has started thinking of the similar structures as they are scaling up and rapidly increasing the complexity of their businesses. Swiggy haven’t adopted the group structure and its offerings, like Swiggy Access and Swiggy Pop residing under the broader umbrella of the company. As the company expands, Swiggy is likely to adopt the group like structure with the separate legal entities for their offerings akin to those Ola and Flipkart.
The co-founder of Swiggy and the Chief Executive officer Sriharsha Majety said that the startup that has recently hired Vivek Sundar as the chief operating officer is presently mulling on the kind of structure that he wishes to put in place eventually.
“We’re mulling over the structure right now. The initiatives that we are launching right now like Pop, Access, etc are all a part of the Swiggy umbrella, but as complexity increases, as the need to be more agile increases, we may think about it (a group structure),” said Majety. “I think there are merits to thinking about it like that, building an ecosystem for more and more experimentation to happen, so we’ll need to be watchful of that.”
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