While the news of Flipkart deferring recruitment dates by six months is yet to die down, an Economic Times report states that Flipkart’s shares have been further marked down by 15.5 percent by a Morgan Stanley mutual fund. This is the second consecutive markdown after a 27-percent markdown by Morgan Stanley in the last quarter. This markdown now values Flipkart at $9.39 billion.The e-commerce giant was valued at $15.2 billion last July.
The report suggested that as of March 2016, Morgan Stanley had valued the Flipkart shares at $87.9 per share, which was at $103.97 per share in December last year. Last June,the value of a share was at $142.24.
The year brought a series of markdowns for Fipkart.Apart from Morgan Stanley, Fidelity and Valic had marked down the value earlier this month by 20 percent and a T Rowe Price-managed mutual fund had marked down their holdings by 15 percent in April. Apart from Morgan Stanely, the other key shareholders of Flipkart include Tiger Global, DST Global, Naspers, GIC and Accel.
In an article for YourStory, Sumanth Raghavendra explains how funds routinely mark their holdings up or down – based on each fund’s way of assessing the fluctuations. These markdowns are tightly coupled with the class of shares they own, tempered by covenants and terms and conditions of the investments.
Every aspect of the original investment, ranging from seniority of liquidation preferences to anti-dilution rights influence these calculations. Beyond this, each fund has its own way of comparingits private holdings with some comparable public peer to modulate the final result duly.
As a part of its Series-D round of funding in 2013, Morgan Stanley had picked Flipkart’s shares. The e-commerce player had then raised $360 million. Morgan Stanley had also picked additional shares from Flipkart when the company had raised $1 billion investment in August 2014. The report by Economic Times suggests that Flipkart has been looking to raise a new round of funding since late last year to be able to take on Amazon.
In the past couple of months, Flipkart has made several changes in its management, and its shift of focus on Ekart has come under strong public scrutiny.
In his article, Sumanth states that Flipkart’s markdown is a symptom of a large shift of sentiment in the VC community. Many sources state that the markdowns, hiring debacles and general slowdown are all functions of how the system works, and would likely bring ‘sanity’ to the startup ecosystem.
However, one cannot ignore the fact that there are several upheavals taking the startup ecosystem by storm. While last year the hype was around pumping in funds, this year it is moving more towards consolidations, as a result of market corrections. This might not necessarily spell doom, but could actually mean the startup ecosystemis coming out stronger.