Private Equity Getting More Private in India

For some time there has been talk that Indian e-commerce firms are over-valued and that the bubble will burst. Perhaps a squeeze in later stage funding may be a signs that the Indian startup ecosystem is cooling slightly.

Times of India reports that even as Indian e-commerce Unicorns like Flipkart and Snapdeal have struggled to shore up their valuations this year, the euphoria around early-stage investing has remained intact -- so far.

As many as 85 early-stage startups have already raised series A rounds, up from 50 last year, according to Tracxn, which collects data on private companies. But that doesn't necessarily bode well for these companies as signs of a squeeze in follow-on rounds are already starting to surface. This may even pave the way for early consolidation in over-funded categories like food tech, online services marketplace, budget hotel aggregators and hyperlocal businesses.

In the past year, young Indian startups, some of which are not even incorporated as companies, have raked in $3-5 million in funds as investors laid very early bets in search of the next Unicorn -- those billion-dollar companies which are not so mythical anymore.

Overnight doubling of valuations, competitive bids and the use of funds to lock out rivals became the new normal for the fledgling Indian startup ecosystem, which has attracted unprecedented capital of late. But now warning signs are coming in thick and fast on the back of a tumbling stock market which has seen US tech stocks plummet.

Investors say they want to prize profit over scale and growth -- a rare ask just a few months ago. "Founders need to focus on building a long-term business with their $5-million cheques and plan to use it over 12-18 months instead of chasing a quick series B round. Series A or large seed rounds have been easy to raise because a lot of VC funds have money for that stage.

However, on the flip side, most of these larger funds just don't want to do series B rounds unless it's their own deal. I'm hoping that this will change," said Anand Lunia, co-founder of early-stage fund India Quotient. As many as 26 companies have racked up $50-100 million so far this year said the Tracxn data, which shows that not too many larger rounds are being done. Flipkart's last three rounds have been led by its existing investor Tiger Global, while Snapdeal's latest $500-million financing took more than six months to close.

SJP @DigitalAsian


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