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This is How Devaluation of startups will Impact Startup Ecosystem in India

IT’s a question in mind of many young entrepreneurs that what went wrong with Indian Unicorns that their valuation is going down?

Recently Zomato has now been valued at $500 million by HSBC Securities & Capital Markets (India) Pvt Ltd, about half the valuation at which the restaurant search firm raised its last round of funding in September. ( Read Full post here )

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Also India’s largest e-commerce company Flipkart has seen a steep 27 percent cut in its valuations over the weekend. US financial services giant Morgan Stanley now values its stake in Flipkart at $103.97 per share from over $142 means losing close to $4 billion in a flash!.

startup devaluation indiaThis phenomenon is not limited to India, and there has been a global meltdown in startup valuations. Public listed companies like Dropbox, Twitter and LinkedIn have seen a 10-25% drop in share prices. Valuations of multi-million dollar companies like Snapchat have been hit.

In recent years, India is flooded with VC Money and 9 Indian companies marked as Unicorn. As these companies grow large their losses are growing larger still Investors are pouring Money into these companies because everybody is investing in them or they are just focusing on Growth.

Sachin Bansal, co-founder of Flipkart said (At the India Internet Day 2016 event ) “not worry ‘too much’ about the drop in valuation of the company. For him, the mark-down in the valuation by Morgan Stanley and Mutual Fund T Rowe Price is a “theoretical exercise” and not based on any transaction.

Direct Impact of devaluation is on startup itself but there may be other consequences on startup Ecosystem:

Impact on Others:

This may lead a few mid to large-sized companies to their death bed but that may help weed out ‘wannabe’ entrepreneurs.

Flipkart is obviously struggling to raise funds at its preferred valuation, but the development has dragged down competitor Snapdeal too. According to a report in Mint newspaper, Snapdeal has held talks with several new investors who have refused to invest money in the company at its current valuation of $6.5 billion.

VCs are long known to not keep all their eggs in one basket, but there is no denying that for a long time money was flowing down a few sectors that looked more favourable and a lot of good startups might have lost their chances due to this. Paula Mariwala, Executive Director, VC firm Seedfund 

But this will surely not Impact other startups valuation if they are realistic about their valuations. They Must look look at what had happened two years back and set their valuations to the scenario that existed 24 months back. If they remain realistic, they will get funded.

Job Fear: 

When its hard to raise new funds, the first thing companies do is to focus on cost cutting and easiest way they find is to fire.

Recently at IIT Delhi said,  Once the most sought-after for placements, some startups have started withdrawing job offers at IITs in Delhi, Mumbai, Roorkee and Guwahati because they’ve either shut shop or are closing some operations.

As per times of india, At IIT Delhi, two startups withdrew job offers after they closed down, while another two made offers but could not keep the commitments.

Focus on Innovation & Customers:

A major drawback for Indian startups is the lack of focus on innovation and customer experience.

Deep discounting model may not work longer and these companies need to focus on business model that will generate profits.

we have to wait and watch how this slow down in funding and devaluation of companies will actually impact the ecosystem. 

Team Bizztor

Bizztor is a Media Platform focused on Educating, Connecting and promoting startups.
Our vision is to help early-stage startups and be a part of their growth. we believe that startups have the potentials to create solutions for community problems and we see ourself as helping hand to such entrepreneurs.

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