Flipkart is considering raising debt worth $700 million to fuel the next round of growth.

The company is in talks with investors to raise debt by selling Rupee convertible bonds, according to investment bank sources in Mumbai.

“They are discussing funding in the range of $650-700 million,” said the source. Privately-held companies, which are still in the growth phase, look to raise capital from venture capital firms and sometimes even private equity firms, as a thumb rule. The reason they raise debt through bonds is to pay less interest charges.

Flipkart did not elicit a response when asked.

One of the reasons, industry watchers believe, Flipkart is looking at this option is that some investors are having second thoughts when it comes to investing, given the astronomical valuations the company has gathered since the last 18 months. India’s most valuable start-up is currently valued at $12 billion, 12 times its revenues.

“Investors are now seriously staring at high valuations, which in turn, requires them to invest a higher amount to make a profit and longer gestation time before exiting a venture,” said Farooq Oomerbhoy, Co-Founder, Orios Venture Partners, which has invested in start-ups like Exclusively. E-commerce ventures are usually valued at different metrics such as Gross Merchandise Value (GMV), rather than profits. Both Flipkart and Snapdeal are not profitable and the former is burning $40 million every month, according to industry watchers.

This high burn rate, coupled with high valuations and no near term profitability, is starting to play spoilsport. “At these high valuations, I am not sure I would get the desired returns,” said Darshana Kadakia, Partner, Grant Thornton India.

However, large investors are still backing the e-commerce major and according to industry sources, are close to pumping in the amount as venture finance.

Meanwhile, bond investors are negotiating for a higher rate of interest as they do not get the first preference when it comes to exiting. “Equity investors have an advantage when the company lists and hence bond holders will charge a higher rate of return for loans,” said Kadakia.

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