Why markdowns didn’t hurt the e-commerce company’s valuation

BENGALURU: Since the start of 2016, Flipkart has been hit by valuation markdowns from at least five of its own investors, mostly mutual funds in the US. These funds including Morgan Stanley, Fidelity and Valic have valued the company anywhere between $5 billion and $10 billion.

These valuation markdowns were seen by investors and analysts as a clear indicator that Flipkart’s valuation will slide dramatically from its peak of $15 billion in its next funding round.

Yet, on Monday, Flipkart announced it had secured fresh capital of $1.4 billion at a valuation of $11.6 billion. This implies a pre-money valuation of $10.2 billion, the value of the company excluding the round’s capital infusion.

So how did Flipkart bag a higher-than-expected valuation?

Three reasons mostly, according to three people familiar with the matter.

One, most of the investors who had marked down Flipkart’s valuation had limited information rights. When investors buy shares in a company, they negotiate shareholder rights which include rights of information about the company. Some Flipkart investors like Tiger Global, Accel Partners and Naspers have access to full financial records. Others such as the mutual fund investors have far limited access to the company’s financials.

Consequently, they didn’t have a full picture of the company’s health.

Two, the mutual fund investors owned little amounts of Flipkart stock. Together these funds owned less than 10% of Flipkart.

Three, many of the markdowns with a few exceptions are dated before November, after which Flipkart’s business has picked up significantly.

Other than these reasons, what helped Flipkart’s case is that it is the only local e-commerce start-p that is seen as serious competition to Amazon India over the long-term.