Unicorns are finding it tougher to raise money, sustain high valuations in India

Unicorns are mythical creatures. In the real world, they are startups which are private and are valued at a billion dollars or more. These are seen as having the brightest of prospects among startups of all kinds. However, this valuation is increasingly being questioned.

Talk to any venture capital investor and the answer is that India’s unicorns (list below), have been valued way above what they should be, particularly because there seems to be no clear path on how they are going to make money for investors.

Such firms might actually find it more difficult to sustain such valuations if they list on stock exchanges, where investors would get impatient with their wait for profitability. Companies in the United States carry such lessons. Square, a payments company, was listed in November with a capitalization of $4 billion, around a third of what it was valued in its last private funding round.

Normally, such firms would need to head to the bourses within a few years, but sustained availability of high amounts of funding has allowed them the luxury of staying private for longer. That seems to be changing as investors take more time to decide on the next tranche of investment. And they are insisting that valuations do not rise at the crazy rates of 2014.

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Despite the funding it raised this year, Flipkart’s valuation hasn’t changed much. Compare this with last year, when Flipkart’s valuation zoomed from $7 billion to $11 billion in the space of just five months after it raised two huge rounds of funding worth $1.7 billion, according to data from CBInsights.

Rival Snapdeal’s valuation was $1 billion in May last year when it raised $100 million in series E round. By December, the valuation had more than doubled to $2.5 billion after Softbank pumped in $627 million. This year, Snapdeal has raised $500 million in round led by Alibaba, Foxconn and BlackRock, but its valuation has not changed. Online classifieds portal Quikr was valued at $945 million in April, but fell to $900 million in July when it raised $60 million from Coatue Management, Falcon Edge Capital and Kinnevik in the secondary market.

The sharp rise in valuations in a short span was mainly for consumer-facing firms such as those mentioned above. Unicorns such as InMobi, which raised $100 million this year, and is now based out of Singapore, has been valued at a billion dollars and is a major player in digital advertisements. Mu Sigma, a big data startup, is also part of the unicorn club and last raised funding in 2013, according to CBInsights data. These startups did not go through a frothy investment phase and stayed at realistic valuations.

In terms of time, furniture retailer Pepperfry (not a unicorn) took eight months to close a $100 million round led by Bertelsmann India Investments and Goldman Sachs. Snapdeal took six months to raise $500 million from China’s Alibaba Group and Taiwan’s Foxconn Technology. And Flipkart has been reportedly trying to raise a further $600 million since March.

New York-based Tiger Global, a prolific investor in Indian e-commerce companies, has slowed its investments and is pushing firms to either consolidate or go for an initial public offering. This is not happening in India alone. In the United States, e-commerce startup Jet said it raised $350 million, which valued the loss-making startup at $1.5 billion. That was lower than what the firm had hoped for. Room rental firm Airbnb raised $100 million but that did not increase its valuation of $25 billion.

On average, valuations in late-stage rounds of financing are down by almost a quarter, and funding rounds are taking longer to close. This trend is expected to stay through the first half of 2016. For unicorns, valuations they were getting used to in the last two years might turn mythical.

Also Read:

Fidelity’s picker of bluechips Will Danoff wary of unicorns

Gaming unicorn Razer to launch corporate VC fund next year

Square’s IPO valuation cut signals tough 2016 ahead for ‘unicorns’

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.