Flipkart has ruled the etail business in India since 2007 when it was first launched as the online bookstore. Over the years, because of the promises it showed, its valuations soared as investors from all over the world lined up at its doors. But its honeymoon period suddenly came to an end earlier this year when Morgan Stanley and T Rowe Price downgraded their holdings in Flipkart by 27% and 15% respectively. Suddenly its valuations were down from $15 billion to about $11 billion. It shook the industry. There were suddenly talks around being profitable. Analysts murmured the loopholes in the approach Flipkart had been adopting to stay ahead in the market. Even the news emerged that Flipkart was working hard to reduce the losses over a period of time. The company also reshuffled its leadership team.
However, it looks like the etailer’s steps have not impressed other investors. This is the reason that two more investors in Flipkart have now marked down the value of their stakes in the company by about 20%, according to the regulatory filings made with the US Securities and Exchange Commission (SEC). This has suddenly brought down the e-tailer’s valuation effectively in the range of $9-10 billion. In other words, in less than three months Flipkart has become a $9-$10 billion company from $15.2 billion. According to the Times of India, “While Fidelity Investments revalued its Flipkart shares at $82 apiece compared to $103.97 as of November 2015, Valic Co, another mutual fund investor, reduced the value of its Flipkart shares by about 20% to $98.19 per share from $123.11 in November last year. Fidelity and Valic had bought shares in Flipkart’s series D round in 2013.”
On the face value, it is an ugly news for those who are desperately seeking funds for their dud ideas. Nonetheless, it is a great news for startups who can show promise and are working in the side of solving real business problems. At the same time, this should open the eyes of investors who ran after the quick buck by simply buying stake in over-hyped ventures. Cases of Housing.com, PepperTap and others in recent times should be more than suffice to learn from.
Sense should be applied while investing in high flying startups like Ola, Uber or Housing.com, etc. It reminds us of the Prime Minister’s words earlier this year when the Startup India program was launched. He had said, “Startup does not only mean software or ecommerce venture.”
In the short term, Flipkart’s marked down valuation might potentially harm the interests of the startup community. But it is not as bad a news as it seems. It can now be hoped that most of the funds would not sit around ecommerce ventures in India. There would be focus on startups and ventures which have developed in innovative products.