Flipkart clicks Alibaba but may get less value

In talks to raise Rs 6,700 cr but China firm says will pay less per share versus what others paid in last funding

India’s largest e-commerce marketplace, Flipkart, is in talks with Alibaba to raise $1 billion (Rs 6,700 crore at Friday’s exchange rate) but the  Chinese e-commerce firm (Alibaba) is looking at investing at a lower valuation in a tighter funding market. This means Alibaba is willing to pay a lesser amount per share as against what other investors paid in the last round of funding in July 2015.

Alibaba is an existing investor in other Indian e-commerce firms such as Snapdeal and Paytm. It expects a stake in Flipkart could get it a stronger hold against competition from Amazon, which has an open cheque book to conquer the Indian market. But, it wants to invest at a valuation nearly a quarter lower than $15.2 billion, the value investors put money in Flipkart in July 2015, people familiar with the development said.

This could delay Flipkart’s fund-raising by a few months, allowing it to focus on operational efficiencies and pushing its advertising and logistics units to monetise further. It also would push for faster profitability of Myntra, the fashion app and portal, where it has a leverage to sell high-margin private products to customers, people said.

The shift in valuation downwards comes soon after Morgan Stanley, a small but key investor in the company, marked down the value of its stake in the company by 27 per cent. Experts said  the drop in value had been known for months but was only made public recently. Flipkart declined comment. Techcrunch  first reported the development of Flipkart and Alibaba’s discussion on funding with lower valuation.

The drop in value of Flipkart, India’s most valuable start-up, has kicked off a debate on overvaluations and the onset of a correction in the Indian startup space. Even budget room aggregator OYO Rooms seems to be eroding as investors shy away from putting in their money at the targeted $600-million valuation.

While Flipkart has over 50 million monthly active users, the number of transacting users on the platform is said to be much smaller. The company’s previous two fund raising efforts in December 2014 and July 2015 propped up the value of the company to $11 billion and $15 billion respectively. Since then, however, Amazon has emerged as a strong competitor to Flipkart, which has scared investors.

The ripples of Flipkarts drop in value is being seen across India’s nascent startup ecosystem, which is undergoing its first real correction. Going forward, investors expect there to be a renewed focus on fundamentals and profitability in 2016 as opposed to a land grab mentality that saw some insane cash burn rates in 2015.