ShopClues

Timeline

1. 2011Sanjay Sethi, Sandeep Aggarwal and Radhika Aggarwal set up Clues Network and launch the ShopClues marketplace from an office in Gurgaon.The three founders had earlier worked in the United States
2. 2012The site positions itself as a marketplace for unbranded and value priced goods rather than a discount store for known brands.
3. Mar 2013Helion Venture Partners, Nexus Venture Partners and Netprice.com lead a 10 million dollar round, four months before the founder's arrest in the United States.
4. Jul 2013Sandeep Aggarwal is arrested in San Jose, California, on insider trading charges, and steps down as chief executive; Sanjay Sethi and Radhika Aggarwal take over.
5. 2014Sandeep Aggarwal founds Droom, a marketplace for used cars.
6. Jun 2015ShopClues launches Capital Wings to finance the working capital needs of its merchants.
7. Aug 2015Luxottica, owner of the Ray-Ban brand, accuses the site of selling counterfeits before the Delhi High Court.
8. Dec 2015The company takes a stake in hyperlocal app HeyBiz and says it will spend about 50 million dollars buying or investing in as many as eight startups.
9. Jan 2016Tiger Global leads a 100 million dollar round and the company crosses a billion dollar valuation.
10. Apr 2016The acquisition of Momoe, a mobile payments company, is closed as the first step towards a wallet and merchant services.
11. May 2016A partnership with GoDaddy lets small sellers on the platform build their own e-commerce websites.
12. Jun 2016The company claims half a million sellers on the platform.
13. Jul 2016AdZone, a self service advertising platform for sellers, is launched.
14. Nov 2016Demonetisation cuts traffic on the site by about 30 per cent in the following weeks.
15. Dec 2016Management says it will file documents for a Nasdaq listing by September 2017 and puts the company's value at about 7,100 crore rupees.
16. Mar 2017Founder Sandeep Aggarwal files a defamation case against Radhika Aggarwal and Sanjay Sethi; the board publicly backs the two executives.
17. May 2017Reports count about 250 resignations in four months, which the company calls natural attrition.
18. Jul 2017Deepak Sharma is hired as chief financial officer as the company prepares for a public listing.
19. Aug 2018Existing investors put in 16 million dollars in an internal round, and the monthly burn is reported to have fallen from 5.5 million dollars to under half a million dollars.
20. Oct 2018Filings show a loss of 208.14 crore rupees for the year to March 2018 on revenue of 271.2 crore rupees, up 50 per cent.
21. Nov 2018The Delhi High Court restrains ShopClues from selling counterfeit L'Oreal products and holds that it had gone beyond the role of an intermediary.
22. Jul 2019Reports say the company may shut within months, with staff down from more than 1,000 to about 500 and a plan to cut another 150 jobs.
23. Oct 31 2019ShopClues announces an all stock merger with Singapore based Qoo10, and says it has 350 employees.
24. Nov 2019The deal is reported to value the company at 70 to 100 million dollars, against a peak valuation of 1.1 billion dollars.
25. Dec 2019Filings show the loss narrowed to 68.58 crore rupees for the year to March 2019, on revenue of 204.07 crore rupees.
26. 2026The marketplace's website is still live under Qoo10 ownership, selling to the same value segment it was built for.

What ShopClues was

ShopClues was an online marketplace, which in Indian e-commerce means a platform where sellers list products and the company handles the storefront, payments and delivery relationships rather than owning inventory. It was run by Clues Network Private Limited from Gurugram, and its sellers were small businesses rather than brands.^[1][2][14]

Its defining choice was the product mix. While Flipkart, Amazon India and Snapdeal fought over branded electronics and fashion, ShopClues built its catalogue around unstructured and unbranded goods: home and kitchen products, daily utility items, low priced fashion, electronics accessories and general merchandise. That catalogue was cheaper to source and had less competition from global brands.^[1][3]

The second choice was geography. The company said about 70 per cent of its orders came from tier II and tier III towns at a time when most online retail was concentrated in the metros, and it shipped to about 30,000 pin codes. Its buyers were often first time internet shoppers who wanted a mobile phone cover or a pressure cooker, not the newest flagship device.^[7]

By 2016 the platform described itself in numbers that sounded like scale: a 700 million dollar revenue run rate, three million products shipped a month, five crore listed products, 500,000 seller merchants and 25 million registered buyers. The company's own target was 1.3 billion dollars of annualised gross merchandise volume by March 2017.^[7]

The catalogue was organised the way a market is, not the way a brand store is. Wikipedia describes the platform's categories as unstructured: home and kitchen, fashion, electronics and daily utility items, which means the shopper came for a product and not for a label. Sellers listed themselves, the platform took commission on each sale, and the company said it had half a million sellers by June 2016, a figure that mattered more to investors than any single category.^[1][7]

How the marketplace worked

The marketplace earned commission on sales and fees from advertising and services. Sellers paid to be visible, which is why the company built AdZone, a self service tool that let a merchant buy native and display advertising on the platform with the help of an advertising technology partner.^[7]

Money was also made adjacent to selling. Capital Wings, launched in June 2015, financed merchant working capital. Momoe, the mobile payments company acquired in 2016, was meant to give sellers accounting tools, offline payment capability and access to merchant finance, and the company described it as a play that would eventually matter more than a wallet.^[5][6]

For buyers the platform offered seller support rather than a private label. A partnership with GoDaddy in 2016 let small sellers put up their own websites using ShopClues as a starting point, and a seller application for Android, launched in 2016, moved merchant management onto mobile.^[1]

The model's economics were always fragile. Marketplace commission on a two hundred rupee product is a few rupees, and the company had to spend on advertising to acquire buyers who were not yet shopping online, so growth came with a cash burn that only made sense if the buyers came back often.^[10]

History

ShopClues was founded in 2011 by three people who had worked together in the United States: Sanjay Sethi, who had been with eBay, Sandeep Aggarwal, a former internet analyst at Caris and Company and Collins Stewart, and Radhika Aggarwal. The registered entity was Clues Network Private Limited, and the marketplace opened in Gurgaon with a catalogue that deliberately avoided the branded categories its larger rivals were fighting over.^[1][8]

In March 2013 the company raised about 10 million dollars in a round led by Helion Venture Partners with Nexus Venture Partners and the Japanese group Netprice.com. Four months later, in July 2013, Sandeep Aggarwal was arrested in San Jose by the Federal Bureau of Investigation on charges of passing inside information to a hedge fund executive about a possible Microsoft and Yahoo deal in 2009, when he worked for Collins Stewart Wealth Management.^[8]

He was its chief executive at the time, and the company lost him at the moment it needed capital most. He pleaded guilty in the United States case, resigned from operations, and the investors considered bringing in an outside chief executive before Sanjay Sethi and Radhika Aggarwal took charge. Sethi ran the product and technology side, and Aggarwal, as chief business officer, ran merchants and business development.^[8][14]

The next five years were the company's growth years. It raised a 100 million dollar round led by Tiger Global in January 2016 that took it past a billion dollars of valuation, acquired Momoe, added the AdZone advertising business, and pushed into rural distribution through partnerships with assisted commerce companies such as StoreKing and Payworld, whose franchisees in kirana stores and mobile recharge shops sold to walk in customers who had never used a shopping application.^[1][4][7]

In 2017 the story turned. The company's founder filed a defamation case against his former wife and his former partner, the board backed the sitting executives, and the reporting that followed focused on resignations, an abandoned listing plan and the search for a buyer. What had been one of the youngest Indian unicorns became a company that could not raise fresh money.^[9][14]

The company's own account of its early years was more confident. Business Today ranked it first among five-year-old startups in its 2015 coolest startups list, and the profile that came with the ranking described a business that was not worried about the cash wall its rivals had built, on the theory that Indian e-commerce would diverge into niches and each company would have to differentiate. A conversion ratio of about 4 per cent on its own traffic was cited at the time as evidence that its buyers were converting better than the browsers on bigger platforms.^[3][6]

Founders and the fight for control

The three founders were close enough that two of them were married: Sandeep Aggarwal and Radhika Aggarwal were husband and wife while running the company. Their separation turned into a public dispute. Sandeep Aggarwal accused Radhika Aggarwal of not giving him credit for building the business, and the argument played out through Facebook posts, media interviews and eventually a defamation case filed in 2017 against Radhika Aggarwal and Sanjay Sethi.^[14]

The board's answer was to back the sitting management. Radhika Aggarwal, as chief business officer, and Sanjay Sethi, as chief executive, ran the company for the whole of its growth and decline, and the investors who had put in money under Sandeep Aggarwal chose not to fight the change of control.^[9][14]

Employees who watched the company closely have said since that the loss of the founder hurt fundraising more than operations, because he had been the person who could raise capital. Sethi, described by people who worked with him as the technology brain, was not the same kind of pitch to investors, and the company never raised a large round again after 2016.^[14]

Sandeep Aggarwal's second act was Droom, a used vehicle marketplace he founded in 2014. He also kept a public position on the ShopClues collapse, arguing that his departure was treated as a scandal while the company's later losses were the real story.^[14]

Funding, investors and the unicorn year

ShopClues raised about 250 million dollars over its life, and most of it came in three rounds. The 2013 round of about 10 million dollars brought in Helion Venture Partners, Nexus Venture Partners and a Japanese investor. GIC, the sovereign wealth fund of Singapore, invested in 2015. Then Tiger Global led the 100 million dollar round in January 2016 that made the company a unicorn.^{[1][4][8][13]}

The 2016 valuation of about 1.1 billion dollars was the high point. Media reports put the internal value at roughly 7,100 crore rupees by December 2016, and the company was still talking about a public listing. When it needed money again two years later, the same investors had to fund it themselves: in August 2018 they put in 16 million dollars in an internal round, which the chief executive described as more than sufficient to reach profitability.^[4][9][10]

Tiger Global's exit from the story is the sharpest illustration of what happened to the investment. The fund had put in a reported 80 to 100 million dollars, and it eventually wrote off the entire investment. Nexus Venture Partners and Helion Venture Partners also carried large write offs when the company was sold.^[13][14]

Two smaller sources of cash are worth noting because they show how tight the company had become. In September 2019, weeks before the sale, it raised 7.8 crore rupees from its own parent entity. And a planned sale to Snapdeal, which would have left the three founders with about 10 per cent of the combined company, collapsed after due diligence turned up unpaid dues to vendors.^[13][15]

The investor list also explains why the company lasted as long as it did. GIC, the Singapore sovereign fund, and Tiger Global were joined by Nexus Venture Partners and Helion Venture Partners, and those funds kept the business alive with bridge rounds when no new investor would come in. Their involvement was also the reason the sale had to happen at all: a company with that many institutional holders cannot simply be wound down, so the cheapest exit for everyone was a stock deal with a buyer who wanted the merchant network.^[13][14]

The listing that never happened

For a company of its size ShopClues spent an unusual amount of time talking about going public. In December 2016 the chief executive said the company expected to file documents with Nasdaq by September 2017 for a listing, while cautioning that the offering would depend on market conditions. The company had hired a chief financial officer in July 2017 for exactly that purpose.^[9]

The plan did not survive 2017. Indian e-commerce valuations were being questioned, Flipkart had shelved its own international listing plan, and ShopClues had no path to the kind of revenue that a public market would accept. The Nasdaq idea was dropped, and the company moved instead to looking for a buyer.^[9]

The failure to list matters to how the story is told. A listing would have given the company a market price, a route for investors to exit and an obligation to publish numbers every quarter. Instead the company's finances reached the public only through filings sourced by data platforms, and the only exit available was a sale.^[11][16]

The sale negotiations ran through several potential buyers. Reports at the time said ShopClues held talks with Snapdeal, Paytm Mall, eBay and Flipkart, and every one of those conversations ended without a deal. The reason given in each case was price: the company was worth more to its founders than to any buyer who had looked at its accounts.^[14][15]

The preparations for a listing also tell their own story. The company hired a chief financial officer in July 2017 specifically to prepare for a public offer, and in the same year reports counted about 250 resignations in four months, which it called natural attrition. A company that is hiring a listing officer and losing that share of its staff in the same quarter is not failing in secret, and the two facts together explain why the offering never opened.^[9][15]

Counterfeit products and the courts

The most persistent legal problem for the marketplace was counterfeits. In August 2015 Luxottica, the owner of Ray-Ban, accused ShopClues of selling fake products and asked the Delhi High Court for relief, and the court pulled up the company for breaching an earlier order by continuing to list Ray-Ban products.^[1]

The decisive case came in November 2018, when the Delhi High Court restrained ShopClues from selling counterfeit L'Oreal products nearly four years after the cosmetics company filed its suit. L'Oreal India said the court held that online marketplaces must operate with caution if they want the protection given to intermediaries, and that ShopClues had been disqualified from the exemption under Section 79 of the Information Technology Act because its role went beyond that of an intermediary.^[12]

The remedy went further than a ban. The court directed the site to disclose the complete details and addresses of all its sellers, to obtain certificates from sellers confirming that products were genuine, and to take brand permission before listing branded products at all. For a marketplace built on unbranded goods that wanted to sell more branded ones, the order removed most of the freedom it had in curating its catalogue.^[12]

The counterfeit problem was not unique to ShopClues, but it was worse for a platform with hundreds of thousands of small sellers and limited quality control. The same period saw brands such as Tommy Hilfiger, Lacoste, Calvin Klein, Levi's and Superdry working with courts and police to raid warehouses holding fake stock, and every case made the argument that marketplaces rely on brand owners rather than on their own checks.^[12]

The sale to Qoo10

On 31 October 2019 ShopClues announced an all stock merger with Qoo10, a Singapore based e-commerce group that runs marketplaces in Singapore, Indonesia, Malaysia, China and Hong Kong. The Indian company said the deal opened cross border opportunities for buyers and sellers across Asia, that the ShopClues brand would continue to operate, and that there would be no organisational change. It also confirmed the merger covered the holding company of ShopClues, Ezonow and SmartShip, and that Qoo10 would take over Momoe, the payments arm.^[1][13]

The price was the shocking part. The transaction was reported to value ShopClues at 70 to 100 million dollars, against a peak valuation of 1.1 billion dollars in late 2015, which made it one of the largest valuation meltdowns for an Indian venture backed company. Qoo10's chief executive had personally invested about a million dollars in ShopClues earlier through a special purpose vehicle.^[13][14]

The terms also underlined who was being paid. The deal was entirely in stock, so the founders and investors took shares in a Singapore group rather than cash, and the buyers were not paying for control of a running Indian marketplace so much as absorbing it. Tiger Global's write off, reported at 80 to 100 million dollars, was the largest single loss.^[13][14]

ShopClues went into the deal with 350 employees, down from a peak above a thousand, and with the promise that branding and operations would continue as they were. The company's own statement put the seller base at more than seven lakh small and medium merchants, which was the asset Qoo10 was buying: a distribution network in towns that its Southeast Asian marketplaces did not reach.^[13][16]

Qoo10 itself was a smaller company than the valuation headlines suggested. It ran localised marketplaces for small and medium enterprises in Singapore, Indonesia, Malaysia, China and Hong Kong, and had raised about 82.1 million dollars in 2015 from investors including Singapore Press Holdings, eBay, Saban Capital Group and Oak Investment Partners. Its chief executive had personal money in ShopClues before the merger, which is one reason the all stock structure was acceptable to a board that had run out of options.^[13]

Revenue, losses and the numbers

The published accounts tell the story of a company that grew quickly, then shrank. For the year to March 2017 the loss after tax was 347 crore rupees on revenue from operations of about 180 crore rupees. For the year to March 2018 revenue from operations rose 50 per cent to 271.2 crore rupees, but the loss was still 208.14 crore rupees, and employee benefits alone cost 111 crore rupees.^[11]

The year to March 2019 was the year of discipline. Revenue from operations fell 24.7 per cent to 204.07 crore rupees and total revenue fell 23.3 per cent to 209.46 crore rupees, while the loss narrowed to 68.58 crore rupees, which the chief executive described as a 67 per cent reduction with revenues relatively flat.^[16]

The burn rate moved in the same direction. In August 2018 the chief executive told employees in an internal email that monthly burn had come down from 5.5 million dollars in January 2017 to under half a million dollars, and that the company expected to break even for the first time around Diwali that year. It did not break even, and the improvement came from cutting costs rather than from earning more.^[10]

Every one of these numbers is small for a company that was valued at a billion dollars. Revenue of 271 crore rupees in the year to March 2018 was a fraction of what Flipkart and Amazon India reported in the same period, and it is the clearest evidence that ShopClues' gross merchandise value was never the same thing as money the company could keep.^[11]

The gap between the two kinds of number is the single most important thing to understand about the company. In 2016 it described a 700 million dollar revenue run rate built on 500,000 sellers and 25 million registered buyers, and in the year to March 2019 its revenue from operations was 204.07 crore rupees, which is roughly 29 million dollars at the exchange rate of the time. The marketplace was moving merchandise worth hundreds of millions of dollars and earning a small commission on it, and the difference between those two figures was the cost of running the platform.^[7][16]

Employees and layoffs

ShopClues employed more than a thousand people at its peak and a few hundred by the time it was sold. The decline was documented in stages: about 250 resignations in four months were reported in 2017, and by July 2019 the company had come down to about 500 employees after laying off more than 200 people, with a plan to release another 150 and to run on fewer than 150 staff.^[15]

The company's account of those cuts was that technology had made roles unnecessary, with an official saying that technological advances had outplaced 15 per cent of employees. People familiar with the company told reporters that the share of people leaving was above 65 per cent, which is a different story: a company cutting to stay alive.^[15]

The workforce numbers explain the speed of the collapse. A marketplace with 500 employees can support a platform, but it cannot run the marketing, seller acquisition and category management that a growing marketplace needs, so the cuts and the revenue decline reinforced each other through 2019.^[15]

By the time of the Qoo10 announcement the company reported 350 employees and said there would be no organisational change. That figure is the last one the company published, and it is roughly a third of the headcount it had when it was calling itself a unicorn.^[13]

The cuts had a cost that never appeared in the accounts. A marketplace needs people to onboard sellers, answer complaints about deliveries and chase the fake products that got the company into court, and those were exactly the roles that went first. When the company told reporters in 2019 that technological advances had outplaced 15 per cent of its staff, the honest reading was that it had stopped doing work it could no longer afford, which is how a platform of seven lakh sellers came to be run by a few hundred people and a buyer.^[15][12]

Rural push and the enterprise turn

The most interesting strategic bet late in the company's independent life was rural distribution. ShopClues partnered with assisted commerce companies such as StoreKing and Payworld, whose franchisees ran small shops and recharge points, and used them to put the catalogue in front of customers who did not own a smartphone or were not comfortable paying online. The company said it aimed to reach 300,000 such offline stores within 18 months.^[7]

The pilot numbers show how the programme was built. ShopClues had access to 16,000 StoreKing franchisees and ran a trial with Payworld in 52 stores in Kerala and Tamil Nadu, which was meant to scale to 18,000 stores within a month. The company said 70 per cent of its orders already came from tier II and tier III markets, and that with rural orders included that share would reach 80 per cent of revenue within 18 months.^[7]

Alongside rural retail the company built enterprise businesses. Ezonow was a social selling platform whose reseller base crossed eight lakh users, Momoe handled merchant payments, and SmartShip ran logistics. By 2019 the company said its enterprise business was 15 per cent of revenue, which is a small share but a real one, and it was the part of the business that a buyer could use.^[13][15]

The rural push also put the company closer to the counterfeit problem, because assisted commerce sells through shops that are harder to police than a branded store. The court order requiring seller disclosure and brand permission applied to the same catalogue the rural programme was pushing into smaller markets.^[7][12]

None of it changed the outcome. A business that earns a few rupees of commission per order needs enormous volume to cover a head office, and ShopClues never reached the volume that its larger competitors treated as a starting point.^[11][16]

Competition

ShopClues competed with everybody in Indian e-commerce and beat none of them. Flipkart and Amazon India had far more capital, Snapdeal had a comparable value positioning with more money behind it, and Paytm Mall used payments cash to buy market share. ShopClues' answer was to stay out of the fight: it said its niches would survive because the market would diverge, and that it did not need the cash wall its competitors had built.^[3]

The company's real competition was often offline. A buyer in a tier III town comparing an unbranded kitchen product on ShopClues with the same product in the local market was not choosing between marketplaces; the marketplace had to beat the shop on price and trust, and trust was the harder half.^[7]

In the value segment ShopClues also faced the marketplaces' own second hand and clearance channels, the social commerce sellers on WhatsApp and Facebook, and eventually Meesho's reseller model, which took the same unbranded catalogue and the same small town buyers and grew faster with a much lighter cost structure.^[1]

The competitive lesson the company left behind is about differentiation without advantage. Being the marketplace for unbranded goods was a genuine position, but it was not defensible, because the same goods were available on every platform and the only thing a seller cared about was where the order came from.^[11]

Reading the numbers

ShopClues is the cleanest Indian example of the gap between valuation and revenue. It was valued at 1.1 billion dollars in January 2016 on the strength of a 100 million dollar round, and sold in October 2019 for a reported 70 to 100 million dollars in stock, while its revenue for the year to March 2019 was 204 crore rupees. A reader comparing those figures is looking at what a private valuation means when it is set by the last investor rather than by a market.^[4][14][16]

The second lesson is about the shape of marketplace economics. Commission on low priced products is thin, so the company had to grow volume faster than costs, and the only way it could show improvement was to cut costs and shrink. The loss narrowing from 208.14 crore rupees to 68.58 crore rupees in one year came with revenue falling 24.7 per cent.^[11][16]

The third is about trust as an operating cost. A marketplace with hundreds of thousands of small sellers has to police counterfeits or lose brand owners, and ShopClues did not do it well enough: a court found it had lost the legal protection given to intermediaries because it did more than host listings. That finding was about liability, and liability is a cost that shows up in a valuation.^[12]

The last number worth keeping is the seller base. More than seven lakh small merchants were still on the platform at the end, and that network, not the brand, was what Qoo10 bought. India's value commerce market turned out to be real and large, but it went to companies that reached it with lower costs and better matching rather than to the one that arrived first.^[13][16]

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