Bengaluru: US-based investment firm Vanguard Group has slashed the valuation of its stake in India’s largest cab-hailing service Ola—the latest indicator of imminent down rounds at many of India’s unicorn start-ups.
A down round is a funding round where a company raises money at a lower valuation than it did in the previous one.
According to a regulatory filing with the US Securities and Exchange Commission, Vanguard World Fund has marked down the value of its holding in Ola’s parent firm ANI Technologies Pvt. Ltd by over 40%—which would indicate a valuation of close to $3 billion, down from the company’s peak of $5 billion when it last raised $500 million in November 2015.
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According to the filing, Vanguard valued Ola shares at $182.7 apiece during the November quarter, down from $311.27 a share in the previous quarter. While the latest filing was issued by a Vanguard-owned mutual fund called Vanguard World Fund and an earlier filing was issued by Vanguard Variable Insurance Funds, the valuations mentioned in both funds are comparable since they both own common stock in Ola.
Vanguard currently holds 166,185 shares in Ola valued at about $30.37 million.
Vanguard also owns a small stake in India’s most prized Internet start-up Flipkart, whose valuation it had marked down during the September quarter, Mint reported on 2 December. According to the latest filing, Vanguard has maintained the value of its holdings in Flipkart at roughly $68 a share, indicating a valuation of about $7.3 billion.
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US mutual fund giant Fidelity Investments slashed the valuation of its holding in Flipkart by more than a third in November, increasing the chances of the e-commerce giant having to raise money in a so-called down round soon. This marked at least the sixth instance of an investor in Flipkart marking down the value of its holding in the company over the past 12-18 months.
An Ola spokesperson did not immediately respond to e-mails and text messages from Mint seeking comment.
Mint had first reported in June that Ola had initiated talks with investors to raise $300-400 million as it seeks to maintain its lead over arch rival Uber Technologies Inc. Flipkart is also currently in talks to raise fresh funds, Mint reported in October.
In November, The Economic Times had also reported that Ola is in talks to raise fresh funds and may be valued at anywhere between $3 billion and $4 billion in its latest round of funding, indicating a discount of 40% from its peak valuation of $5 billion.
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Flipkart founder Sachin Bansal, in an interview with Mint in December, dismissed the markdowns as “theoretical exercises" and emphasized that “valuation is what will happen when a real transaction takes place." Such markdowns to a certain extent reflect prevailing investor sentiment even while not being entirely accurate.
For instance, Fidelity’s valuation of Flipkart is almost the same as that of Morgan Stanley, which in November marked down the valuation of its holding in the marketplace by 38%, effectively valuing Flipkart at about $5.5 billion.
The valuation markdowns from mutual fund investors present a stark contrast from the go-go days of 2014 and 2015 when most leading Indian Internet start-ups led by Flipkart raised funds at eye-popping valuations.
Since then, while India’s Internet market has expanded, the number of actual transacting users has barely grown, forcing top investors such as Tiger Global and SoftBank to scale back expectations. Since then large investors have pushed their portfolio companies to strengthen their business models and focus on building sustainable businesses with strong unit economics.