As billions of dollars flow into India's booming online economy, some investors are beginning to fret that soaring valuations could hamper market listings and limit their options when it comes to turning paper profits into cash.
India's rising number of smartphone users, cheaper Internet costs and a vast middle class have turned it into one of the hottest markets for investors such as Singaporean wealth fund Temasek Holdings, venture capitalists Accel Partners and Japan's SoftBank Corp.
But several advisers and particularly later stage investors say they are concerned that optimistic estimates and already sky-high prices implied by privately sold stakes could make initial public offerings hard to pull off.
"Public markets will have a completely different perception to the excitement in the private market," said a banker with an Indian firm, which advises investors in the online sector.
"Investors are now taking a pause and asking if these valuations will stand the scrutiny of stock markets."
Investors have pumped $4.5 billion into the Indian Internet space in the 13 months to February, with online marketplaces Flipkart and Snapdeal getting almost 60 percent of the funding since 2007, according to Morgan Stanley.
Analysts value Flipkart, India's biggest e-commerce company, at around $11 billion. That would amount to roughly three times estimates of their gross merchandise volume (GMV), or the value of goods they sell.
Snapdeal CEO Kunal Bahl said his company is currently valued at slightly over $5 billion and is expected to end the financial year with $3 billion in GMVs.
By comparison, e-commerce veteran Ebay trades at roughly equal to its GMV, according to its website. Flipkart did not respond to an email and call seeking comment.
Three of the leading brick and mortar retailers in the country - Future Retail, Shoppers Stop and Pantaloons Fashion and Retail - only manage a combined valuation of less than $1.5 billion, according to Reuters Data.
"Valuations are obviously quite high," said Raja Lahiri, a partner at advisory firm Grant Thornton in India. "If you are a late-stage investor, then the exit and return risks become higher ... The risks are always on exits."
PE firms typically exit investments via IPOs, and most of the local companies look to overseas markets, mainly NASDAQ OMX Group, where a greater number of comparable firms trade.
The Indian regulator is also looking to make it easier for them to list on domestic bourses.
About half a dozen online companies are in talks to raise fresh funds, and reports of negotiations surface in local media daily. Softbank in October said it would invest $10 billion in the Indian e-commerce sector.
"There is a fear [among investors] of missing out, which is partly driving up valuations," said Amit Patni, co-founder of Nirvana Venture Advisors, which invests in early-stage firms.
High valuations of mid-sized companies also make them pricey targets for larger rivals, potentially closing another exit option for investors.
Several bankers, angel investors and PE firms also said they were worried about the rate at which some of these firms were burning cash.
Executives at private equity firms who have invested in e-commerce said that while there was no immediate pressure on companies to turn a profit, conversations had turned to better margins.
Heavy investments by Indian e-commerce firms to lure buyers away from traditional channels mean it will be a while before they become profitable, as was the case with older overseas peers such as Amazon.com Inc.
The combined losses faced by e-tailing companies as a result of discounting strategies is almost 10 billion rupees ($160 million), according to consultant PwC. None make a profit.
India's online start-ups spend as much as 1,700 rupees ($27) to gain a new customer, according to analyst estimates.