Startup funding may bounce back

BENGALURU:After two successive years of poor investment activity, startup funding may start improving later this year as secondary share sales, strong performances by Flipkart and other large internet firms and an expanding internet user base drive an improvement in investor sentiment.

Mint had reported in November that early-stage funding of internet companies dropped to a three-year low in 2017, partly as startups were still struggling to justify their excessive valuations and venture capital (VC) firms who burned their hands in 2015 were still cautious.

Over the past three months, investor sentiment has shown signs of improvement.

Some startups such as education content platform Unacademy, online loans provider Lendingkart, social network ShareChat and a few others have raised successive rounds of funding in a short span — something that had stopped happening after the funding boom ended in late 2015.

Online retailer Flipkart and cab hailing app Ola have maintained their lead over Amazon India and Uber India, respectively.

One of the reasons behind the funding slowdown was the fear that Flipkart and Ola, which have taken up a large amount of the capital invested into all Indian startups, would lose out to their rivals. That fear hasn’t materialised yet. Instead, the strong showing by Flipkart, the only too-big-to-fail startup in the country, against Amazon over the past 18 months has helped boost the investor outlook on the entire ecosystem.

Now, the trigger for an improvement in startup funding could be the proposed multibillion-dollar deal between American retailer Walmart Inc and Flipkart, investors said.

Walmart wants to buy a majority stake in Flipkart in a deal that could value the online retailer at more than $20 billion. If the deal goes through, many influential startup investors including Tiger Global Management, Accel Partners and Naspers will see massive gains on their investments.