Home >Companies >Start-ups >India’s top e-commerce firms feel the strain as funding dries up

Hong Kong: India’s unicorns may be a shrinking herd. As it stands, the country only has a handful of start-ups whose value exceeds the mythical $1 billion. As capital dries up, though, valuations are falling and signs of stress are emerging. The good news is that unprofitable habits are vanishing along with unreal expectations.

Once-hot companies are feeling the strain. Flipkart, the country’s top online retailer, recently deferred the joining date for new graduates. The decision prompted India’s top colleges to consider demanding that start-ups disclose their financial position before they are allowed to recruit on campus. Meanwhile a founder of Zomato, an online restaurant service, recently wrote a 1,400-word blog post in defence of its seven-digit valuation after an HSBC analyst suggested it was only worth $500 million.

Indian start-ups are not unique. Though ride-hailing app Uber has just bagged a $3.5 billion investment from Saudi Arabia and iPhone maker Apple recently poured $1 billion into Chinese rival Didi Chuxing, tech firms around the world are finding funding harder to come by.

If the current pace continues, private equity investment in India will be 25% lower this year compared to 2015 when deals worth a record $22.9 billion were agreed, according to Bain. Though fundraisings for startups still rank amongst the biggest deals struck this year, the average ticket size has fallen sharply.

The good news is that scarcer capital is forcing startups to focus on sustainable growth rather than expanding at all costs. Zomato last week confirmed that it is cutting its physical presence in a number of more developed “high burn" countries, including the United States. Other smaller food delivery companies are also scaling back. Meanwhile, Flipkart is going through a big restructuring.

For India’s online retailers, the scarcity of funding may be particularly timely. A recent overhaul of foreign investment rules specifically prohibits firms that operate as marketplaces from directly or indirectly influencing the price at which goods are sold on their sites. That’s hard to reconcile with the creative techniques that firms have used to offer deep discounts and lure customers.

Pulling in the reins now may enable them to live longer - even if means shedding their unicorn status.

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