It looks like Flipkart is still feeling the aftershocks of the sudden, steep decline in its valuation from $15 billion to $11 billion after a fund owned by Morgan Stanley marked down its shares. According to a report in The Hindu Business Line, IDG Ventures, which sold 1% of its shares in Flipkart last year, is looking to sell its remaining 0.9% stake and exit from the company completely.
When asked about the same, none of the sides involved has given any official confirmation on the same. It won’t be a surprise exactly if that indeed happens. IDG Ventures,which originally invested in Myntra, got associated with Flipkart due to its acquisition of the latter.
It was one of the first investors, in fact, to sold its shares in Flipkart last year for around ₹900 crore at a valuation of $12.5 billion.
However, after that a couple of more investors followed suit as Helion Ventures exited the company by selling its entire 0.2 % share worth about $22.5 Mn (INR 156 Cr.)
Then in a bigger blow, Accel Partners, which was the second best shareholder in Flipkart after Tiger Global, was said to have sold a portion of its share worth $100 million to Qatar Investment Authority. This was, however, denied by Flipkart.
However, the biggest blow to Flipkart was by Morgan Stanley fund which at least confirmed that the attitude of investors towards big e-commerce companies was not that positive as it had been earlier. This was mainly due to the profitability concerns and overinflated valuation which did not justify the financial health of these companies at all.
Then there were reports and rumors about Amazon offering to buy Flipkart for $8 billion. These were termed as “a mere piece of fiction” by Flipkart, nevertheless, it showed the overall sentiment surrounding the fate of cash-burning e-commerce ventures in the country.
And it is not just Flipkart though which is facing the heat of investors. Its archrival Snapdeal also has been facing similar situations for the past few months.
Earlier this year, one of its major investors Sequoia Capital sold its stake in the company. Just a few days back, another investor Saama Capital India Advisors sold its entire stake in Snapdeal to Canada’s Ontario Teachers’ Pension Plan.
Flipkart, and other e-commerce ventures as a matter of fact, now also have to deal with the latest regulations by the government regarding FDI in e-commerce.
Although these companies may have a temporary relief after the approval of 100% FDI in e-commerce marketplace, they may also have to make considerable changes in their business structure to deal with the unexpected clauses. These include 25% limit on sales by an individual seller and no control over product prices and hence discounts.