Alibaba halts fresh investments in India, to wait out for compelling avenues

Alibaba has put a pause on making fresh investments in the Indian ecosystem. And why not?

Zomato’s journey is going through a major crisis with the logout campaign its partner restaurants have started as the discounting practices, especially relating to the loyalty programme Zomato Gold, have led to accumulating of expenses and losses, resulting in poor unit economics for these restaurants. Even with the application trying to make amends and finding a middle ground, the restaurant owners are adamant on their stance, and it is costing Zomato, as well as other food tech marketplaces to some extent, big bucks. 

And given how discount heavy Zomato has been for the entire FY19, the corresponding balance sheet is expected to reflect a dent whatever little sustenance the company tried to bring in its operations during FY18.

Hence, making Zomato investment look like an impending failure for Alibaba in foodtech market which was once an extremely promising avenue for investments.

Paytm Mall is in the process of revamping its entire business model and operations to find a stable ground after it failed to make a mark in the e-commerce industry with its cashback heavy model. And this won’t be the first time Alibaba faces disappointment from its e-commerce portfolio. The first place in this list is occupied by Snapdeal.

Just like Snapdeal had to engage in major turnaround activities to restart, Paytm Mall is also making all kinds of changes to reorganise. It has separated functions from the parent One97, made large changes in the top management - elevating Rudra Dalmia as Amit Sinha left the firm along with other senior executives.

With this, change in Alibaba’s attitude towards Indian market, especially the e-commerce segment, was crystal clear when it did not participate in the recent $160 million round poured in by eBay. Paytm Mall’s inability to retain the investor interest was visible when none of its major existing investors - SoftBank and Alipay (the payment affiliate of Alibaba) - did not participate in the latest round.

So that makes three disappointments out of a limited portfolio of the Chinese conglomerate in the Indian ecosystem. And that too in markets where Alibaba has successfully harnessed the potential in China - foodtech and e-commerce.

BigBasket, another unicorn portfolio of Alibaba, however, still has scope to keep Alibaba’s investment boat floating, but that too depends on how it performs in this period where Alibaba has opted to observe rather than act.

Recently, the Jack Ma led company had made small investments in social video space with a minor $2 million ticket being handed to Vidooly and a $100 million worth investment for VMate. This had come right after the company had shown signs of changing its India investment strategy to issuing smaller cheques, also via BAce Capital founded by former executives of Alibaba starring Benny Chen. Even the board representatives of the company had changed in Indian portfolio in around May and June this year. Guo Ming Cheng and Michael Yuen Jen Yao had replaced Chen in companies like Paytm, Paytm Mall, and Zomato.

Another factor that adds to Alibaba’s latest decision is the downturn of Indian economy that is bound to affect these portfolio startups and the scope of gains for Alibaba. Given the company has made no exits from any of its portfolio companies in the Indian market till date, trying to make an exit now, or reinvesting in risky portfolios, or investing in emerging markets in an unstable economy can lead to unsatisfactory gains for Alibaba - a chance that it is not willing to take.

As per Mint sources, the company doesn’t see compelling investment opportunities and it would rather wait out than take risks. The four member India Investment team of Alibaba led by Raghav Bahl has been asked to only focus on managing the existing portfolio for now.