FK sale eases exit route worries for startup investors
one can accuse the Indian startup 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 startup 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 startups. Flipkart has proven that startups 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 startups. 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 startups spend money wantonly like they were then.
Going forward, VCs and large investors are likely to continue being more choosy about startup 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.