Bengaluru/New Delhi: The crisis at online marketplace Snapdeal, which is up for sale after struggling to raise funds, is the culmination of a series of errors by its co-founders and its board, raising questions about the roles of all parties involved.

Venture capital firms Kalaari Capital and Nexus Venture Partners, both of which have representatives on Snapdeal’s board, are in a tussle with SoftBank Group Corp., which has two board seats, over the company’s valuation in a potential sale.

The other board members are Snapdeal co-founders Kunal Bahl and Rohit Bansal, and Bharti Group veteran Akhil Kumar Gupta, an independent director.

The boardroom battle came out in the open on 31 March when Mint reported that Nexus and Kalaari disagree with SoftBank over Snapdeal’s valuation in a funding round or a sale.

The board members, however, have been aware for several months that a fall in Snapdeal’s valuation would lead to such differences, two people familiar with the matter said.

Yet, the board allowed Snapdeal to keep spending, leading to a cash crunch.

Since September, when Snapdeal launched a Rs200 crore campaign to transform its image, it has held at least three heavily advertised sale events to try and compete with larger rivals Flipkart and Amazon India.

In July 2016, Snapdeal, which had raised some $1.4 billion since October 2014, still had about $500 million left.

ALSO READ: Snapdeal acquisition to benefit Tiger Global more than Flipkart

Discounts and marketing, along with its daily expenses and those at its payments unit Freecharge wiped out much of Snapdeal’s cash reserves, the people cited above said on condition of anonymity.

At the same time, it rejected at least two funding offers because of differences at the board, they said.

And it wasn’t like the splurge yielded much improvement: Snapdeal remained an also-ran in the battle with Flipkart and Amazon while Paytm widened the gap with Freecharge, the people cited above said.

Why would a company in Snapdeal’s state spend so lavishly when it was evident that the differing priorities of the board members would complicate any potential funding round?

“It’s partly a case of brinkmanship by the investors and founders. Everyone expected the other to back off but no one has been willing to budge. SoftBank had assured Snapdeal that it would invest in Snapdeal in the worst-case scenario. But they obviously wanted the funding on their terms. This wasn’t agreeable to the others," one of the people cited above said.

Even as late as January, Snapdeal was spending heavily, expecting funds from new investors or SoftBank, despite the differences. But no such deal materialized. Sales crashed in February and March as it cut spending. It cut hundreds of jobs and shut Shopo, a consumer-to-consumer marketplace.

Now, a distress sale looks like the most likely end for Snapdeal, founded by Bahl (CEO) and Bansal (COO) in 2009.

ALSO READ: Snapdeal’s co-founders hint firm’s fate not in their hands

Nexus, Kalaari and Snapdeal did not respond to emails seeking comment. SoftBank declined to comment.

SoftBank, which is also in talks to put cash into both Flipkart and Paytm, is eager to sell Snapdeal to one of these companies in a cut-price all-stock deal; a sale to Flipkart looks more likely now.

However, such a deal would value Snapdeal at a fraction of its peak valuation of $6.5 billion and severely reduce the value of the holdings of Kalaari Capital and Nexus Venture, which count Snapdeal as their largest investment.

The two VCs, along with the Snapdeal co-founders, have demanded that SoftBank buy out their stakes; SoftBank is yet to agree.

In the end, this is what it has come to: Snapdeal co-founders and its board members, who were responsible for all of the missteps by Snapdeal, are now scrambling to protect their own interests.

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