Indian e-marketplaces expected to see funding shortage in near term: report

The venture funding environment is expected to continue seeing slowdown in the near term for all major marketplaces across categories like ecommerce, fintech, ride-hailing, and food delivery, a new report has said.
“Going forward, investors are likely to focus more on proven models and experienced founders, potentially entering into more late-stage deals with higher round sizes,” according to a report on Indian marketplaces by management consulting firm Bain & Company in partnership with venture capital firm Accel.

Dealmaking is likely to be more measured, and valuation multiples will see some degree of rationalisation, it said.

This is similar to what is happening across the startup ecosystem in India as well as globally as macroeconomic conditions have worsened over the past many months.

In the first 10 months of 2022, marketplaces combined raised about $4.5 billion, just one-third of $14 billion the industry raised during January-October 2021, the report said.


“Funds in India are anticipating corrections from last year’s high valuations; valuation multiple compressions in the US markets expected to trickle into some sectors,” it said.

Anand Daniel, partner at Accel, told ET that amid a tough funding environment, investors are likely to only fund marketplace startups helmed by founders who already have the experience of running a marketplace.

“If someone is starting a new marketplace, if they’ve learned from working at an existing marketplace, it gives an edge, especially when markets are slower,” he said. “Someone coming out of Swiggy says that I have built a unit here or scaled there, that always helps because they know what they’re talking about, they’re not going to make the known mistakes. But, having said that, there is no stereotype to founders, so the next great founder could be coming from anywhere.”

Accel is known for its early bets on ecommerce businesses like Flipkart, Swiggy, Urban Company and others. It also counts business-to-business (B2B) ecommerce firms like Zetwerk and Infra.Market among its portfolio firms.

Going global

The report said existing marketplace-based tech companies and newer ones will primarily see growth by expanding into newer territories beyond tier-3 cities and even by going abroad.

Daniel, however, cautioned that companies cannot burn money while expanding.

“For companies that have found a product-market fit for a particular area and can make it work on a unit level economics in India, and if they take the same model globally, average order value will go up, but they’ll have to be mature and thoughtful in that expansion,” he said.

Lately, companies such as Captain Fresh and Urban Company have expanded into markets outside India.

Prabhav Kashyap, partner at Bain & Company, said, “What we are referring to is an India for the world marketplace model, and the reason why we like it is because this whole manufacturing exports is going to be a massive opportunity.”

Future opportunities

Opportunities for building marketplaces also exist in gaming, caregiver services, and Web3 projects in India, as similar initiatives have worked out well in markets like the US and China, the report said.

India’s total online marketplace gross merchandise value (GMV) will reach $350 billion by 2027 from the current $100 billion, it said.

Marketplaces in the B2B ecommerce space are expected to diversify into more categories, vertically integrate and also enter cross-border trade to capitalise on China+1 sentiment.

“Going forward, tier-3 cities and beyond, exports are exciting areas for marketplaces to emerge in,” the report said. “In addition, there are multiple categories, such as gaming, caregiver services, and Web 3.0, where marketplaces have scaled in the US and China, which can be potential white spaces for India.”