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Why Investors are really going Ga Ga over Social Commerce startups like Meesho

Barely a month ago Techpluto reported that social commerce startup Meesho, which offers online shopping platform for small resellers via social media channels, is in discussion to raise $50 Mn. And on Monday the evitable finally happened.

On Monday Meesho raised $50 Mn from new as well as existing investors. This series C funding came hardly five months after the social commerce startup had raised $11.5 million.

What is also worth noting is the fact that these funding’s have helped  Meesho to attract several high profile investors like Yuri Milner’s DST Partners, RPS Ventures (a SoftBank Fund), SAIF Partners and Y Combinator. The names of so many high profile VCs is good enough indicator that investors are willingly taking a big bet on Meesho.

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Investors are really buoyant about social commerce startups like Meesho

But these funding spree not just reflect investor’s buoyant mood about Meesho alone, but also the entire social commerce industry. In fact, the buzz around the investment community is that social commerce startups like Meesho, Shop101 and Ezmall will lead the next wave of e-commerce revolution in India.

However, the e-commerce revolution led by the likes of Meesho and Ezmall will be starkly different from the one that is being currently led by e-tailer big boys like Amazon and Flipkart. And this is exactly what is making investors fall in love with social commerce companies.

Social commerce startups offer different range of products to consumers and a different kind of customer experience that is more friendly and personalized. This is something that even the likes of Flipkart and Amazon can’t offer.

But the social commerce companies’ biggest advantage lies in its ‘low cost of customer acquisition.’ While big e-tailer continues to experience high cash burn rate to acquire new customers, they may get spared from playing such costly antics. What really makes cost of customer acquisition so low for social commerce companies is the fact that they tap into existing channels like WhatsApp or Facebook to reach out to customers. Besides, more importantly, their limited discounts result in low cash burn rate.

The low cost of customer acquisition offers social commerce companies the decisive advantage of scaling their business rapidly. An important fact that seems to be duly taken note by the entire investor community.

And what also seems to have not gone unnoticed by investor is how social commerce startups have pulled off mindboggling success in China. To give a rough idea about the China factor then one of its social commerce startups, Pinduoduo, is valued around whopping $28 Bn and is today directly competing with big boys like Alibaba and JD.com. This is not it. Pinduoduo recently raised staggering $16 Bn through its Nasdaq IPO.

Investors are hopeful that if Indian economy continues to grow at 7-8% growth rate then there is no reason why social commerce startups like Meesho should not be able to leverage a growing economy to their great advantage. And with it, companies like Meesho stand a great chance to pull off a similar success story like Pinduoduo. In fact, even if Meesho can pull off 50% of Pinduoduo success in next four to five years, investors will still run to their banks with a huge smile on their face.

Of course, a lot will also depend on how Meesho and other incumbent players are efficiently able to maintain their balance sheet. Only time will say how companies will play their cards on this critical front. Until then we can all keep our fingers crossed.

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