India's largest e-commerce marketplace Flipkart is in talks with Alibaba to raise $1 billion but the Chinese e-commerce player is looking at investing at a lower valuation in a tighter funding market.
Alibaba is an existing investor in other Indian e-commerce firms such as Snapdeal and Paytm, and 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.
The deadlock on valuation could potentially delay Flipkart's fund raising by a few months, instead allowing it to focus on bringing in 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 percent. Industry experts opined that the drop in value has been known for months but was only made public recently. Flipkart declined comment.
Techcrunch reported first the development of Flipkart and Alibaba's discussion on funding with lower valuation.
The drop in value of Flipkart, India's most valuable startup, has kicked off a debate of over valuations 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.