E-com/start-up euphoria seen ebbing as investors turn picky

Moneycontrol BureauInvestors in Indian technology start-ups as well some in of the big e-commerce names appear to be getting wary of lofty valuations, even as data points to a sharp jump in investments by venture capital funds, seed funds and angel investors.A Hindu Business Line report today quoting VCCEdge says the number of deals as well as the value of investments so far in 2015, have been significantly higher than those for the same period in 2014. Seed and venture capital funds have pumped in USD 3.4 billion this year, compared to a little over USD 1 billion last year.But Nikesh Arora, President and Chief Operating Officer of Japan-based SoftBank has warned that valuations have become exorbitant and that investors are not factoring execution risks.“Today you can walk in and most of these guys (venture investors) are not going to ask you when you are going to break even; they believe that a good business model is that you keep burning money until you get to a certain scale when the magic will happen and you will start generating profits,” Arora said in an interview to ET.He has said that SoftBank will not invest in the early stages, and only pay a premium for companies that have the potential to scale up.Last month, Business Standard had reported that the exuberance among venture capitalists is ebbing gradually even if the data on deal value and volume were yet to reflect it."Investors are saying 'I can come next month; I don't need to take the next flight to India'. The big bets (Flipkart, Paytm, Snapdeal, Ola, and Quikr) have been taken,” the report quoted Sandeep Murthy, partner, Lightbox, a Mumbai-based venture capital firm, as saying. Murthy also said that investors were now starting to look for signs of scalability/profitability before committing big money.Industry watchers say that the smaller players looking for funding will feel the pain initially, but the bigger players too won’t be immune to this trend.According to a report in business daily Mint, Sales growth at all of India’s top online retailers have slowed sharply in the first quarter of the financial year.This is likely to put pressure on these companies to offer even juicier discounts to woo shoppers and grow their topline. And while online retailers are yet to report meaningful profits or any profits for that matter, they have managed to command rich valuations on back of strong sales growth.Any slowdown in sales growth will hurt valuations, but trying to boost sales through increased discounts will bleed the bottomline further.And some bad news is beginning to trickle in on the jobs front as well.There are reports of housing.com planning to lay off some employees as it restructures operations post the exit of its founder CEO Rahul Yadav.