Why is Flipkart still looking for investors, as their founders are billionaires, now? They can help themselves.

Brilliant question. I almost fell for it! But hey, they are actually the ones funding Flipkart now.

If one actually thinks that Bansals have billions worth of cash sitting in the bank and why don’t they help themselves then the premise is wrong. They have the stake on papers and only when they sell that stake, they can buy fuel for the company.

Bansals as individuals will not have more the few single/double digit crores in their account.

Flipkart today has multiple valuations floating around in the market. Its owners(sellers) value at ~$15b while 3rd party analysts(buyers) estimate little over $5b.

Let us average it out to $10b for simplifying the calculation. With $10 billion valuation both Bansals combined will sell 10% stake to raise $1 billion. of course, other stakeholders can participate in this funding round as well.

Here is the ownership structure of Flipkart:

main-qimg-bfa4c1b8ec5724f677e02e3748c2a438.png

And another way of looking at the ownership structure is:

main-qimg-248802c859c97d2f18624b3f0a639653.png

Now there’s a subtle difference between preferred stock and common stock

This means that when the company must liquidate and pay all creditors and bondholders, common stockholders will not receive any money until after the preferred shareholders are paid out. Second, the dividends of preferred stocks are different from and generally greater than those of common stock.

Out of context but Bansals now do not have much of controlling power over taking decisions for the company. It pretty much run buys the investors (preferred stockholders).
Also, in case Amazon or anyone buys Flipkart then it is the preferred stockholders who will make cash first, then if something is left, the founders will get part of that.

There’s another way of looking at the shareholder pattern

main-qimg-81c57b320180b56404f530e82a234d23.png

So the Bansal’s each hold ~9% of the company. When Flipkart was evaluated at $15b in 2015, Bansals were worth 9% of $15b = $1.35 billion each.

Now as the valuation is coming down, their stake+networth is also coming down. At $5b valuation each will be worth little over $450 million.

That said, Flipkart owners are billionaires on paper, not with real cash. There’s a difference between Mark Zuckerberg being a billionaire and Bansals being a billionaire.

Mark owns 14% of Facebooks stocks which is around 410 million shares and with each share trading at $140, his net worth is over $57 billion.

This essentially means if tomorrow Facebook or Mark needs $1 billion, he can sell $1billion/140 equivalent of shares.

On the other hand, if Bansal’s want to infuse $1 billion of capital in Flipkart, they need to approach private investors like Tiger Global, Accel Partners and sell part of companies stake. Diluting everyone’s share a little bit.


Credit: This article has been written by Avinash Hiremath and re-published from https://www.quora.com/Why-is-Flipkart-still-looking-for-investors-as-their-founders-are-billionaires-now-They-can-help-themselves.

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