Investor Outlook: Why Exits Are Needed in Markets That Don't Run Deep
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Investing is never easy, especially in a volatile market like India. The last two years have shown how dicey the market can get when it comes to valuation of startups, putting investors in a tight spot on what their next move should be
A total of $8.23bn was pumped into startups in India in 2015. In 2016, that number fell to $4.07bn, according to Tracxn. And while 2017 has seen a good traction in terms of investment, as valuations get shaky, and profits and IPOs become more elusive, many investors are now stuck, looking for exits via deals and mergers and acquisitions.
A Part of the Investment Lifecycle
Unlike the US where companies like Snapchat that was once a startup could pull off an amazing public listing like it did, India still has to charter that route, where market movers would value a company like it did for Snapchat. For now the eventuality of startups in sectors that don’t run deep, which is in most cases in India, is to move towards M&A.
“Exits are absolutely necessary as they are life blood of a business. The lack of exits in India is rather just a symptom of the problem. The actual problem is markets are still not consolidating. Once they do, and once there is a clearer route for IPO’s to be established, I believe exits should come around well ” says Avnish Bajaj, MD of Matrix Partners India, which has successfully exit 10 companies, but still manages to hold over 40 active and running ventures with total assets of close to $700m in their kitty.
A Smart Investment Move over Emotions
Most company founders in India when recommended an exit option, tend to get too emotional without thinking of the practical and financial consequences.
“It can be very difficult to separate the business and market side of investments from the entrepreneurial side of it, but decisions have to be made,” said Bajaj. “At the end companies need to be bought and not sold,” he added.
Lending voice to Bajaj’s view, Vikram Chopra, the co-founder of FabFurnish who successfully sold his business to the Future Group and is on his second ventures CARS24 says, “It is rather impossible for so many players to operate in a limited market. Especially if a model is capital intensive, after a point you have to look towards consolidation.”