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Indian unicorns such as Flipkart and Ola are\nstruggling to raise fresh funds at valuations higher than or equal\ntheir last funding round as investors see them ceding market share to\nglobal rivals such as Amazon and Uber in the country.\n
\nBoth Uber and Amazon are flush with funds and are accused of receiving\nmore favourable treatment by the local authorities, as they invest\naggressively to dominate India, the last large open market globally.
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\nFlipkart, the most valuable Indian startup and largest e-commerce\nmarketplace in the country, has seen its value erode from a peak of\n$15.2 billion to as low as $9 billion. Analysts attribute the drop in\nvalue to missteps in running the company, but also to the growing\ncompetition from Amazon, which is running up higher losses to grow\nmarket share.
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\nIndia’s other hot startup, Ola, too recently suffered a markdown in\nvalue by its largest investor Softbank, which attributed close to a\nquarter billion dollar loss to the drop in valuations of Snapdeal and\nOla. Ola was last valued at $ 5 billion, but is looking at raising\nfunds at 40 per cent less at $ 3 billion.
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\n“Amazon and Uber are well-funded internationally and have no problem\nbring in funds as and when required. At no point in time are they being\nvalued with respect to what’s happening in India, but in the case of\nFlipkart and Ola they need to raise money periodically,” said Harminder\nSahni, Founder and Managing Director at Wazir Advisors. “I don’t think\nthey can survive for too long if they are going to be egoistic about\nnot raising money at a lower valuation. You can’t be smart and say you\nwon’t do it, because then your company will disappear,”
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\nBoth Indian firms have been in talks with investors for nearly a year\nto raise fresh funds of as much as $ 1 billion, but with little success\nso far. While Flipkart, which now claims it be a bigger and mature\ncompany than a startup, is looking at hiring an investment banker to\npitch itself to newer investors, Ola, which is being pushed to the wall\nby Uber, is resigned to accept fresh funds at 40 per cent lower\nvaluation or at $3 billion from investors such as Softbank. A deal is\nyet to be finalised.
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\n“The only option for them is to innovate and go back to their\nbootstrapping days. The alternate of succumbing to raising more money\nat lower valuations may put these companies in a vicious downward\nspiral, as current investors would feel cheated and end up extracting a\nheavy price in terms of lesser degrees of latitude that the promoters\nwill enjoy going forward,” says D.V.R. Seshadri, Clinical Full\nProfessor at the Indian School of Business in Hyderabad.
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\nBoth Ola and Flipkart need cash to battle rivals in the digital economy\nwhich has historically favoured just one player to control a\ndisproportionate share of the market. This is true in the case of both\ne-commerce and ride hailing where the company which can continue to\nsubsidise products and services for longer to customers and create more\nvaluable for suppliers will win.
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\n“In my mind\nit’s not a choice at all. Survival will always take precedence over\nvaluation. If you survive, you might be able to build that valuation\nback, but if you try to hold out to get the right valuation, you might\ndie in the process,” said Devangshu Dutta, Chief Executive at\nmanagement consulting firm Third Eyesight. “The fact is that e-commerce\nhas been in the past four to five years a business which is\ncharacterised by attrition. It’s essentially to raise more money so you\ncan outlast the competition.”<\/span>
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