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Funding for the startup ecosystem could continue for another 12 to 18 months and the industry will have to contend with a lot of “turbulence and volatility,” Kalyan Krishnamurthy, CEO of e-commerce giant Flipkart, warned executives.
“It’s going to be tough next year. My guess is that between April and June next year, a lot of startups will be in the market, and that’s the time of truth for the ecosystem,” he said at a weekend conference organized by the Economic Times of India newspaper.
A typically reserved and soft-spoken executive, Krishnamurthy told hundreds of attendees that startup founders must accept low rounds and restructure their companies. Many startup founders are reluctant to take a haircut on their previous valuations in new funding discussions, investors say.
Some startup founders believe that they will not be able to attract and retain talent if the funding arrangement suddenly lowers the value of the employees’ shares.
“In 2001, companies were looking at 2x to 6x valuations with some basic assumptions of growth and profitability over the next two to three years. I think it quickly became clear that those assumptions weren’t going to pan out when Krishnamurthy announced the surge in startup funding in India last year.
Indian startups have raised a record $39 billion in 2021 as investors look to double down on emerging markets. By contrast, as the market put in place earlier this year, funding fell below $3 billion in the quarter ended in September.
And that means taking a deep look at what needs to be done to survive, he said.
Krishnamurthy, who previously worked at Tiger Global’s investment shop, helped architect Flipkart cut its workforce by 30 percent five years ago to help the firm become more efficient. “That’s where we grew up from, so it’s not a problem,” he said.
Walmart-owned Flipkart, which was last valued at $37.6 billion, put a hiring freeze earlier this year and ended its buyout plan, having previously spent about half a billion dollars to expand its online healthcare and travel categories. The firm — which counts SoftBank, Tiger Global, GIC, Canada Pension Plan Investment Board, Qatar Investment Authority, Tencent and Franklin Templeton among its backers — doesn’t plan to go public for at least a year.
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