Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

India's e-commerce industry is showing increasing signs of having hit a rough patch.

Flipkart Online Services, the premier provider of offerings from music to appliances, saw a 25 percent drop in its valuation as fund managers including Morgan Stanley marked down their estimates of the company's worth in recent quarterly reports. Investors will be watching their June statements for signs of a trend.

The problem for Flipkart, and rivals including Snapdeal and Amazon, is straightforward and common: They're losing money because they're spending on infrastructure and logistics; they don't yet enjoy economies of scale; and they're burning cash on marketing with discounts and advertising. (At its spending peak, Flipkart was running through $50 million per month to lure customers from rivals, the Wall Street Journal reported in December.)

Indian Angels
Funding for startups in India is heavily weighted toward earlier rounds, which tend to attract less cash
Source: CB Insights
Denotes proportion of deals from 2012 through Jun 13, 2016.

What's arguably uncommon is the rate at which e-commerce players, especially in the delivery sphere, are going out of business. In April, the on-demand grocery company PepperTap shut up shop, following LocalBanya's decision to undertake "renovation" and moves by Flipkart and the cab-hailing provider Ola to halt their own grocery-delivery services. AutoRaja and Fashionara turned off the lights earlier in the year, while VC Circle reported Thursday that GrocShop folded just this week.

PepperTap was blunt in a blog post outlining its rise and fall:

Losing cash on every order (no matter how small or how controlled or how goal-oriented the burn) meant one day we will run out of cash – perhaps we could slow down the process but mathematically speaking, this was a certainty.

So the question now is whether the bad times are over and the remaining players can survive: Is the cash coming in as fast as it's going out?

Snapdeal has raised at least $1.5 billion, including $700 million in the past year, from the likes of Alibaba, Foxconn, Softbank and the Ontario Teachers' Pension Plan, according to Crunchbase. Flipkart has raised double that amount, including a round earlier this year, according to CB Insights. Meanwhile, Amazon India has the support of its U.S. parent to help it chug along.

Deal Count
India is attracting more rounds of funding, though CB Insights notes that 12 of the 16 largest went to either Flipkart or Snapdeal
Source: CB Insights
Note: 2016 deal count is a CB Insights projection.

That's all good news for the big, established players. A better place to look for the future of Indian startups, however, may be the nation's college campuses.

The delivery firm Grofers, which is backed by Sequoia, Softbank and Tiger Global, this week announced that it's revoking job offers it had made to students, on top of layoffs, VC Circle reported. That's not an isolated incident. Flipkart was criticized last month when it announced plans to delay the start of this year's campus hires by six months.

Cancellation of graduate job offers has become so common that the Indian Institutes of Technology blacklisted seven startups and put five more on notice, the New Indian Express reported. Flipkart escaped the ban because it appeared contrite.

One should be careful about reading too much into these cancellations. Yet with talent such an important ingredient and the nation's prestigious technology institutes being an important place to recruit, rescinding offers could be a leading indicator for startups. If your business is struggling and there's no new cash coming in, cutting campus recruitment and drawing the ire of elite colleges might not be your first move, though it could be your last.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net