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Tough times ahead for India's startups

April 18, 2016

The haircuts have begun. Though not as brutal and ruthless as those that marked the close of the first dotcom bust way back in 2001, they are sending shivers down the spines of many recently hatched companies. Venture capitalists which have bankrolled over 2,000 of India’s rambunctious start-ups over the past 10 years are getting more demanding with their investments.

That comes as a double whammy for Indian start-ups, which are also facing the heat from other types of investors. This week, US-based mutual fund T. Rowe Price, which had invested about $100 million in Flipkart in December 2014, marked down its shares in the Indian e-commerce company by 15%. For the nine-year-old firm, India’s answer to Amazon, and a lodestar for the burgeoning start-up ecosystem in the country, this was its second major setback after February 2016, when another investor, Morgan Stanley, marked down its shares by 27%.

Flipkart’s shrinking valuation marks a time of distress for India’s second generation of dotcoms. The latest data from CB Insights, which maintains databases on venture capital (VC) and angel investments, and KPMG International suggests that the amount of money VC firms are investing in start-up companies in Asia has declined for two consecutive quarters, making it the first time since 2012 that there has been a six-month stretch of falling dollars flowing from VC firms. Effectively, only $6.5 billion was plowed into VC-backed start-ups in Asia during the first quarter of this year, down from $14.3 billion two quarters earlier.

 

 

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