In 2015, FreeCharge was the toast of the Indian startup ecosystem. It had been founded in 2010, and merely five years later, had been sold to Snapdeal for $400 million. It was the largest acquisition in the internet space in India, a title it holds to this day.
But now FreeCharge has another distinction to its credit — in the span of just over two years, it’s managed to shed 85% of its market value.
After months of hectic negotiations, FreeCharge has been acquired by Axis Bank for $62 million (Rs. 400 crore). There had been many suitors in the fray, most prominently its biggest competitor, Paytm, and even external parties such as PayPal, but FreeCharge chose to go with the private sector bank.
Happy to announce the partnership between Axis Bank and Freecharge. A great institution taking a fantastic business ahead! Kudos to FC team!
— Kunal Bahl (@1kunalbahl) July 27, 2017
Snapdeal CEO Kunal Bahl confirmed the development, calling it a “partnership” between Axis Bank and FreeCharge.
FreeCharge founder Kunal Shah, who’d stepped aside from the daily running of the company, also mused about his choice to sell FreeCharge to Snapdeal in 2015. “27 months ago, team at FreeCharge was neck to neck with top player and had the choice of going solo with 95M dollars we had in bank or merge with a larger company to have step function growth. We chose to merge,” he wrote on Facebook. “Most internet exits in India have been due to distress or common investors wanting to cut losses and merge their portfolio companies, but we had none of that situation and we chose this path to become bigger.”
Shah admitted that it might not have been the best decision. “Didn’t work out as planned but super proud of what we achieved as a team and product and wish it great success with Axis.”
While Snapdeal and FreeCharge’s stakeholders are putting up a brave face, there’s little doubt that FreeCharge had been struggling against the onslaught of Paytm. In 2016, FreeCharge had tried to raise funds from external investors for over a year, but had found no takers. It eventually had to raise funds from its parent company, Snapdeal.
Snapdeal, for its part, has been struggling too. In February this year, it had faced a cash crunch, fired 500 employees, and withheld the salaries of its founders. The troubles at Snapdeal seemed to spill over to FreeCharge as well — around the same time, FreeCharge had let go some of its staff, and CEO Govind Rajan had resigned.
Now in Axis Bank’s corner, FreeCharge will hope for a new lease of life. Axis Bank has deep pockets, and could help the payments company start competing against Paytm and other players. But it remains to be seen if Axis Bank will be willing to pump as much money into FreeCharge as its rivals are willing to spend — Axis Bank a publicly listed company, and doesn’t have the luxury of enduring sustained losses to build market share. FreeCharge’s competitors, on the other hand, are very comfortable with not making money for long periods — Paytm founder Vijay Shekhar Sharma has said that profitability isn’t on the agenda, and he wants to grow the company.
FreeCharge also has the unenviable task of trying to come back from behind. Paytm is the clear market leader at the moment with over 230 million users, and has also become a payments bank. FreeCharge’s core features — bill payments, mobile recharges and money transfers are now being performed by a multitude of apps, which makes it harder for the company to have a unique differentiating factor. FreeCharge does have a strong brand name, and goodwill among its core set of users, but will not find it easy going in the crowded payments space — even with Axis Bank behind it.