Govt's policy on FDI in e-com forced us to write off investment in 99labels: Info Edge

Info Edge (India) Pvt Ltd, which runs a string of consumer internet properties and has been investing in other tech startups in India, last week said  it would make provision for or write off its entire investment of around Rs 29.3 crore ($5.4 million) in Ninety Nine Labels Pvt Ltd during the current quarter. Based out of New Delhi, Ninety Nine Labels runs online private sales portal 99labels.com and 9rasa.com.

Techcircle caught up Info Edge co-founder and vice chairman Sanjeev Bikhchandani to dig deeper into the decision.

"We did not write off the investment in a hurry. 99labels had been trying to raise fresh round of funding for over 15 months. During this period we have put in two rounds of bridge investments totalling Rs 10 crore. While it has had promising conversations with several investors, they ultimately did not end up in investments," shared Bikhchandani.

He also referred to the recent clarification that the Indian government is not having a re-look at the current ban on foreign investment in the Indian e-commerce sector. Last September, the Indian government specifically excluded e-commerce firms from its decision to allow up to 51 per cent FDI in multi-brand retail.

"Finally, when the government clarified that FDI in multi-brand e-commerce is not permissible, we reached a conclusion that it would be hard for the firm to raise money it needed from other VC investors. And without that funding, the asset would need to be impaired. Even to tweak the model to a marketplace etc requires time and money," said Bikhchandani.

Some e-com firms have switched to an inventory less marketplace model which continues to operate as an e-com platform for the consumer but cuts off the cash burn.

He added that such an action (investment write-off) also improves the prospects for the company since the valuation at which Info Edge came in at does not become a hurdle for the next round and therefore another investor can come in.

Bikhchandani said Info Edge remains a shareholder of 99labels in the company. On whether it considered a merger of 99labels with another e-com firm as many VC firms have done with their e-com investments in India, he said: "We don't believe in postponing the recognition of write-offs through forced mergers."

Last September, Info Edge invested Rs 5 crore ($0.9 million) afresh in Ninety Nine Labels. This came after a larger round in May 2011 when it approved an investment of Rs 15.7 crore through a mix of buying out some existing shareholders and fresh equity infusion into the firm. This means Info Edge invested around Rs 7 crore more into Ninety Nine Labels.

In an interview with Techcircle, Bikhchandani had said  that his firm would continue to focus on Indian consumer internet startups. A few weeks ago, the company stepped up its exposure in existing portfolio firms, taking majority stake in online restaurant guide Zomato and e-learning firm Meritnation.

(Edited by Prem Udayabhanu)