Quikr and Common Floor both came to the Indian startup landscape in last quarter of last decade. Quikr focused on being an online classified portal and Common Floor tried its luck in solving the great “where can I get a home?” problem. Down the line after 7 years Quikr enjoys a healthy 30 million satisfied customer base and huge support of investors whereas Common Floor has been fighting a battle of survival as its fresh fund raising campaign was shown a black flag by investors led by Tiger global.
Over the past six months, Quikr has been diversifying into new businesses to boost its revenue model. The company is pushing into five new business segments—automobiles, real estate, jobs, services and customer-to-customer sales. Just after the four month of launch of Quikr Homes, Quikr announced to acquire the real e-state property portal Common Floor. Though no official disclosure was made to confirm the deal amount, the expected amount of deal is approx 120-160M $USD. After the deal of Quikr and Common Floor, Quikr is expected to be valued at around US$ 1.5 Billion based on the share-swap ratio.
Revenue Generation and Valuation – It’s Tricky!
During financial year 2015, Quikr generated a revenue around 25 Cr INR while Commonfloor’ revenue stood at 46 Cr INR. Despite generating almost 80% more revenue, commonfloor’s valuation was almost 80% lower than Quikr valuation. Quikr was near $1 Billion valuation and Commonfloor was valued at $200 Mn. Isn’t this fact hard to digest?
Actually the way investors put valuation to a company is not solely governed by the revenue generation. Companies with larger active customer base are given higher valuation because of the monetizing potential associated with this base which could be utilized in future through more aggressive marketing and winner takes all nature of business.
More than this the penetration of Quikr goes deeper than Commonfloor. Tier 1 & 2 city public has also got associated with the Quikr due to the opportunity of sale which Quikr provides. Its business model is just perfect for customer acquisition.
This generous valuation of Quikr has helped it in getting a funding of $346 Mn till date whereas commonfloor’s net funding stats are around $ 60 Mn only.
Quikr acquired Common Floor – A Win-Win Deal for Both
Since the inception of Quikr homes, Quikr group has been trying hard to build a solid base for its housing vertical. Investment of $10 Mn in Wonobo, a portal offering street view, and other acqui-hiring of IRX, an aggregator of real estate agents, are all part of Quikr’s strategy to strengthen its real state vertical.
FS comprehended the major drivers of this deal and analysed that the deal was a win-win situation for both the players –
Benefits to Common Floor – CommerFloor was facing problems of getting further rounds of funds due to its inability to monetize the portal. Tiger Global which is common investor in both of the players was not in alignment of further funds requirements of Common Floor. If one of the existing investors stops supporting, it would become difficult for any startup to get further funds as other investors see something amiss. Fund crunch and non-supporting Tiger Global could have given no better alternate than a merger with some other player. So merging was a good option for common floor to keep its operations running.
Quikr has an active customer base of 30 million and Common Floor also got access to this large base. Common floor and Quikr home together would be able to monetize the potential of this base by some agressive marketing.
Benefits to Quikr – With this acquisition, Quikr entered in the club of more than 1 Billion $ valuation companies. Quikr would get the benefit like technical support, experience through Common Floor for its business vertical of real state, Quikr Homes.
Pranay Chulet, CEO of Quikr, stated “We see great synergies between us and CommonFloor. We both believe in creating businesses that are strong on growth as well as monetization and have a tremendous cultural fit. With a highly successful recent campaign, launch of industry defining Street Vision, and now QuikrHomes is off to a great start in 2016. We expect this transaction to not only accelerate the growth of QuikrHomes, but also our other verticals.”
Together they would now be, hopefully, able to raise funds from investors who otherwise have started giving a cold shoulder to Indian real estate startups. Commonfloor’s domain expertise plus structured data and Quikr’s large customer base would anyway serve as the best assets for the combined entity.
Sector Consolidation – An Inevitable Phenomenon
At the initial stage of startup, the major focus of founders’ remains on getting loyal consumer base, improvements in services and standing against market competition. But once it get stabilized in its initial business vertical, the focus gets shifted to expansion in terms of market volume, geo graphical presence and business verticals. So, the phenomenon of sector consolidation comes into picture. Investors’ sentiment lies with the group which is gaining popularity and they try to pull out of the business where they are not able to visualize a profitable future. Association of two such players obviously creates a win-win situation for both the stakeholders –
- Market leaders become more powerful by acquisitions of small players as the valuation of the joint venture increases. They share the positive points of each other and try to capitalise on the strength of each other.
- Small players become stronger by getting support of biggies’ technology, experience, and brand name.
So, market consolidation is a phenomenon that is going to take one day and market would be leaded by big giants in their domain.
Sector Consolidation – Major Events
Though “Quikr and Common Floor Deal” is not the first event of sector consolidation, it’s one of the remarkable events of the same with the aggregate and intentions tangled in it. FS compiled the list of major consolidation events of startup eco-system.
E-commerce Sector– The biggest event of sector consolidation in 2014 was by Flipkart by acquisition of Myntra with purpose of sector consolidation of fashion and life style products sector. Previously, Myntra had also consolidated the market of apparel by acquisition of SherSingh and Exclusively in 2013. Snapdeal also tried to consolidate the market of e-commerce by acquiring Esportsbuy in 2012, Shopo in 2013, Doozton and Wishpicker in 2014 and Exclusively and Freecharge in 2015.
FoodTech and On-Demand Delivery Domain – Foodtech and on-demand delivery services have proved their acceptance in hectic life style of Metro cities and hence the entry of large number of players in same domain has also started the consolidation. Foodpanda acquired Just Eat India and TastyKhana, hyper – local grocery delivery platform Grofers acquired SpoonJoy.
Transportation Sector – Gigantic and Unorganized sector of transportation has attracted a lot of players to develop their business model in this sector. Air, Train, Bus, Cabs, Auto, Carpooling all of the verticals are waiting to get consolidated by big players. The consolidation has already been started by the acquisition of TaxiForSure by Ola, Redbus and Yourbus by Ibibo.
Sector Consolidation – Consumer Benefits
Sector consolidation gives a lot of benefits to consumers –
- Reliable Services – Entry of biggies in the all the related verticals of their business model are helpful for mass to get the reliable services. Technical backend, CRM strategies, Experience of these giants provide a trustworthy platform for consumers.
- Cost Benefits – With sector consolidation players are able to share their services, consumers etc and hence the final cost of product/service get reduced for end consumer without cash burn and hence ensure the long term survival and availability in market.
- Time Saving – With consolidation of services, consumer need not to keep searching for the best available option and hence saves the time of consumer.
Sector Consolidation – Organizational Benefits
Sector consolidation gives a lot of benefits to organizations –
- Business Expansion – Sector consolidation helps in expanding the business portfolio of the companies of both the stakeholders. Instead of struggling with the new business vertical, its good to get an established market base and then expand it.
- Combined Services – Combining the services, manpower, resources etc of the players helps in producing better consumer service and hence more trust of consumer.
- Consumer Exchange – Exchange of loyal consumer base helps in making a strong market base and hence the more probability of revenue generation.
- Enhanced Profitability – The combined services, technologies, manpower, resources etc helps in reducing the operational costs of the companies and hence enhancing the probability in long term survival.
Sector Consolidation – Lessons for Entrepreneurs
With this sector consolidation phenomenon by gigantic players, more acquisitions are going to take place in future. So the entrepreneurs who are targeting for their startup to get acquired in recent future must develop their business model in the following direction –
- Business verticals enhancement for biggies
- Supporting services of big players’ domain
- Customer acquisition platforms for biggies
- Service betterment portals for biggies
Wish you luck for your startup. Stay tuned with FS Labs to know more.