Jabong could be acquired at much less price: Will the bubble finally burst?

Jabong, online fashion retailer, is known to be looking for a buyer for some time now . The previous reported sum was something in the range of $250 million to $300 million. However, the sale process that is expected to be completed in the next six months, may not go as planned for the e-commerce site. It may sell at a much less price than it expects. Snapdeal and Future Group are said to be the forerunners at acquiring Jabong. According to an ET report, Snapdeal is looking at cash-cum-stock transaction while Future Group is offering an all-cash deal. Flipkart and Abof had earlier shown interest, but subsequently backed off.

But what has caught our attention is that both companies are reportedly looking to buy the fashion e-retailer owned by Global Fashion Group at almost fraction of the sum, which could be as low as $50 million. It should be noted that Global Fashion Group valued the company at around $200. This brings us back to the valuation bubble that is bound to burst. Remember the satirical Basecamp valuation post .

Valuation matters to entrepreneurs and one may wonder how people value a company, especially startups! The answer is tricky. It all really ‘depends’ on many factors without a standard formula. Remember how once insanely valued Housing.com at $400 million that is over Rs 2670 crore, fell flat to less than $50 million. That’s not all. Xiaomi, one of the most valuable tech startup, had everyone (especially worrying investors) take a second look at its $45 million valuation.

Jabong’s asking price and reports talking about the fraction of amount buyers are willing to pay only further strengthens the startup and valuation bubble theories that have been listening to for almost a year now. After pumping billions of dollars into Indian Internet start-ups, investors have finally slowed by investments. It looks like a viscous circle. Research firm VCCEdge found that angel deals have dipped to 115 from 133, while Series-A transactions have plunged to 14 from 66 so far this year from the previous one.

Initially, investors were happy if startups outdid competition. However, there has been gradual change as investors are now looking for profitability. Needless to say, even bigger startups like Flipkart, Snapdeal and Amazon India are struggling everyday to break the chain of discounts and achieve profitability.  The Wall Street Journal reports how executives at tech startups say investors are becoming more discerning and iron fisted and expecting a stronger focus on profitability.”

We’ve some of the unicorns like Zomato lay off employees. And, let’s not even get started with the whole drama that unfolded at Housing and Tiny Owl. The food tech sector that once looked so promising is now almost fading off, sans a few who are still struggling. The e-commerce space has been hurt as startups and investors were optimistic about a rapidly expanding middle class quickly latching onto online shopping from street markets, but it hasn’t been the case. The strategy hasn’t worked, and it has only led to doubt about the valuation of every other startup out there.

The over valuation of a startup that usually revolved around hype and survived on VC funding, is now finding a hard time adjusting to the change. It isn’t as easy to get funding as it was year earlier. Indian startups have raised $3.5 billion in funding in the first half of 2015. It added about 2,000 startups have been backed by venture capital/angel investors since 2010, of which 1,005 were created in 2015 alone . This is now changing as VCs look for profitability and companies adhering to the newly coined term ‘Çockroach startups’. So, is it finally the year we see the startup and valuation bubble pop? Do share your views in the comments section below.