Sharma, Bloomberg Quint
New Delhi, 2 December 2016
its ever biggest markdown of the Indian e-commerce company, a mutual
fund managed by Morgan Stanley slashed Flipkart’s valuation by 38
percent on Tuesday. With this, the valuation of the country’s most
valuable internet company stood at at $5.54 billion – the lowest since
But Flipkart is not alone. Japanese investment
giant Softbank earlier this month, announced a 58.1 billion yen ($513
million) investment loss in two of its biggest investments in India -
cab-hailing firm Ola (ANI Technologies Pvt. Ltd) and e-commerce
marketplace Snapdeal (Jasper Infotech Pvt. Ltd).
This comes at a time when these companies are looking to raise additional funding.
country's top startup evangelists and investors are not too worried
though. Investors BloombergQuint spoke to said that a markdown in
valuation is a much-needed market correction which will bring maturity
in the Indian startup ecosystem that saw euphoric valuations over the
last two years.
“This is nothing but a natural cycle that is
bound to happen”, said Ben Mathias, managing director of Vertex
Ventures in a telephonic interview. Vertex Ventures is the venture
capital arm of Singapore state investment firm Temasek Holdings. "Last
two years, there was a lot of rapture around startups and valuation
were driven up because of that. The situation wasn’t limited to India
but was also seen in Silicon Valley, China and other markets. What we
are seeing today is a rationalisation of valuations and expectations. A
needed market correction has taken place."
heaps of money from late-stage mutual funds and cross-over funds in a
heated fund raising environment leads to bubble valuations which
increases the risk of potential markdowns when the market cools off,
added Anshuman Verma, founder and managing director of venture capital
firm M1L and a former partner at Accel Partners.
startup ecosystem was booming till 2015, with venture capital
investments flowing in. Indian startups raised $5.5 billion (Rs 36,000
crore) from VC firms and angel investors in 1,096 deals, in 2015 alone,
according to data compiled by research firm VCCEdge.
Tough Times Ahead?
markdowns may cause promoters some pain as they will have to dilute a
higher stake to raise funds, but industry experts said that if the
company performs well and is able to meet its targets, lower valuation
will not necessarily dent their ability to raise more funds.
can’t raise money on valuations alone. There are key metrics like
profitability, margins, return rates. All this is what really matters
and is what investors focus on while making investments," said Sunil
Rao, Partner, Lightspeed Venture Partners
Mathias of Vertex
Ventures added if a company has reached the target it has set for the
year, it shouldn’t worry about raising funds. It can raise money at
robust valuations, despite markdowns.
Not everyone shares that view though.
to raise money for your venture post meaningful markdowns is akin to
trying to refill and write with a broken (leaking) pen. It is tiring,
messy, and irritating to write with such a pen. Isn’t it? Markdowns are
demoralisers for companies, and act as leakers." said Anshuman Verma,
Founder and Managing Director, M1L
Lessons From Markdowns
advice to e-commerce entrepreneurs is they should look at markdowns as
a wake-up call. “They should consider markdowns as pointers to
fundamental problems in the business that must be solved. It should
push them to become more realistic, pragmatic and action-oriented,” he
According to Devangshu
Dutta, chief executive at management consulting firm Third Eyesight,
markdowns are a sign that investors were far more bullish and
aggressive earlier, a view they no longer hold. “If
the survival of the company depends on raising funds at lower
valuations, one should do that. Survival should take precedence over
valuations,” he said.
said that with subsequent markdowns the startup ecosystem will see
non-prudent founders and their investors accept the harsh realities of
the art of markdowns.
“We will see further humbling of such
founders/investors/companies. Many from the ecosystem still have not
come to terms with the reality of loss-making in late-stage ventures in
India. Few larger internet ventures are not accepting the state of
affairs as they are, and this could be the starting point of all the
problems,” he said.