The funding winter for the startup ecosystem may continue for another 12 to 18 months and the industry might have to grapple with a “lot of turmoil and volatility,” e-commerce giant Flipkart chief executive Kalyan Krishnamurthy has warned executives.
“This is going to be tough next year. My estimate is that a lot of startup founders will hit the market between April to June next year, and that’s the moment of truth for the ecosystem,” he said at a gathering over the weekend organized by Indian newspaper Economic Times.
Typically a reserved and soft-spoken executive, Krishnamurthy told hundreds of attendees that startup founders should embrace a down round and restructure their firms. Many startup founders are not willing to take a haircut on their previous valuations in new funding deliberations, investors say.
Some startup founders believe that they will not be able to attract and retain the talent if a funding event suddenly makes the employees’ existing stocks less valuable.
“In 2001, companies saw a 2x to 6x spike in valuation with some underlying growth and profitability assumptions for the next two to three years. I think it quickly became clear that those assumptions are not going to play out,” said Krishnamurthy, describing the boost to startup funding in India last year.
Indian startups raised a record $39 billion in 2021 as investors aggressively looked to double down in emerging markets. In contrast, as the market reserved its position earlier this year, funding in the quarter that ended in September slid below $3 billion.
And that means an introspection on what needs to be done to survive, he said.
Krishnamurthy, who previously worked at the investment shop Tiger Global, famously helped architect Flipkart cut its workforce by 30% five years ago to help the firm become more efficient. “We grew from there, so it’s not a problem,” he said.
Walmart-owned Flipkart, last valued at $37.6 billion, put a hiring freeze earlier this year and halted its acquisition spree, which earlier saw it spend about half a billion dollars to expand into 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.