Bengaluru: No one can accuse the Indian start-up ecosystem of failing to deliver exits. Not any more.
For years, limited partners (LPs), which invest in venture capital (VC) firms, have bemoaned the lack of exits in India’s start-up ecosystem, even as they ploughed in billions of dollars into unprofitable internet ventures.
The sale of Flipkart to Walmart will go a long way toward addressing those complaints.
Flipkart’s $21 billion valuation will drive significant amounts of capital for internet businesses in India over the next few years, powering the next phase of the entrepreneurship and venture investing in India, investors said.
“It will have a huge positive impact on the venture and start-up ecosystem," said Niren Shah, managing director at Norwest Venture Partners India. “Lack of exits was the No. 1 complaint about Indian start-ups. Flipkart has proven that start-ups can deliver exits at a global scale. It’s also a great boost for Indian entrepreneurship. The Bansals, middle-class kids, started from scratch and built Flipkart into this. It shows Indian entrepreneurs have the skill to compete with anyone."
Apart from the Flipkart sale, exits had anyway increased. Over the past year, secondary share sales worth thousands of crores of rupees in Paytm, Lenskart and others provided helped funds return cash to LPs. Such secondary transactions will continue to provide more liquidity to investors.
But the sheer scale of the Flipkart deal, one of top five start-up deals globally, will drive a sharp increase in investor interest in Indian start-ups. Given Walmart’s profile, other strategic investors may look more closely at acquisitions.
To be sure, it’s not like the floodgates will open for everyone. Investors who burned their hands in the rush of 2014-15 have been cautious about backing start-ups in the past two years. They aren’t letting start-ups spend money wantonly like they were then.
Going forward, VCs and large investors are likely to continue being more choosy about start-up investments than they were in 2014-15. But over the next few years, internet companies that are able to expand to a reasonable scale may find themselves in the enviable position of choosing their suitors. Even the funding mania of 2014-15 was triggered by the $1 billion capital infusion into Flipkart in July 2014.
“What the Walmart deal may do is create the FOMO (fear of missing out) factor. People who had been sitting on the sidelines will now feel like moving in," Shah said.