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Weak rupee impacting the exit of private equity in Indian starts-up

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~India Retail Forum 2015 sees start-ups deliberating valuation matrix~

Mumbai, 16th September, 2015: Private equity is finding difficult to get an exit route for the investments made due to depreciating rupee against the dollar and hence are opting for initial public offer route rather than strategic sale.

“There is some stress for private equity in generating returns due to rapidly depreciating rupee along with competition leading to higher valuations,” said , Member, Strategic Advisory Board and Mentor, L Capital Asia () on the 2nd day of the India Retail Forum 2015.

Returns for private equity has dropped from 40-50% in 2005-08 to 10% in the last two years and holding period has rose to 6 years from 3 years earlier, Kurien said.

Commenting on the valuation matrix, experts at the panel discussion pointed out that digitization of retail business has helped in bringing the price sensitive middle class Indians closer to consumption and in turn aided the entrepreneur scale up his business much faster than the brick and mortar economy that has helped the valuations soar.

“Without compromising on the quality, the e-commerce evolution has helped in sustaining a scalable business not necessarily on financial matrix of being profitable, but in terms of creating value,” said Bharat Banka, Founder and Ex-CEO, Private Equity.

Differentiating between creating value and making profit, experts at the panel opined that business must first create value and then profit.

Stating the paradigm that brands create value and business creates profit, Kurien said, “Fund managers are increasingly investing in changing consumer behaviour and attitude.”

Hence, the normal valuation matrix is not being applied by fund managers while valuing the digital business rather than the brick and mortar conventional business, referring to the current valuation attracted by start-ups like Snapdeal and Flipkarts.

Between 2000-2014, India has attracted $103 billion private equity investments flowing into India of which 50% was corporate with annual turnover in excess of $125 million.

Day 2 at India Retail Forum witnessed a session on Super Economy of India – The Last Two Decades and the India of Tomorrow: The Promise, The Opportunity and the Roadmap by Mr. , Raghav Bahl and .

Retail start-ups must think big and not look at valuations of in and around Rs 1 crore. The promoters of these start-ups deserve to draw an annual salary of Rs 1 crore and hence do not justify the valuation, said Kishore Biyani, Founder and Group CEO, .

Commenting upon his own start-up two decades back, Biyani said we were foolish and stupid then.
Concurring Biyani’s view, Raghav Bahl, founder and former managing director, Network18 and founder and chairman Quintillion Media, called for the need to convert intellectual capital into financial capital and the valuations that he garnered while venturing into television media two decades back.