Gupshup, a Silicon Valley messaging startup with a focus on India, on Wednesday said it raised $240 million from Tiger Global Management and others to buy back shares ahead of a possible IPO next year.

While venture capital investments are traditionally used for hiring more engineers or expanding sales and marketing, buy-back deals allow investors in a startup to realize their investment before an IPO.

A flood of funds at a time when startups stay private for much longer has led to more buy-back deals on the private market, said Ed Zimmerman, a lawyer at Lowenstein Sandler who teaches venture capital at Columbia University's business school, referring to the market in general.

Gupshup raised $100 million in April from Tiger Global and was valued at $1.4 billion. Tiger Global has emerged as the biggest funder of venture deals this year.

Gupshup, which means chit chat in Hindi, allows businesses to communicate with customers through existing chat channels like text messaging, said CEO Beerud Sheth.

"We want to build relationships with these large investors because they can help us in a future IPO and for our growth. But taking too much money can be dilutive," said Sheth about the buy-back. As Gupshup has been around for well over a decade, Sheth said there was even an investor who passed away, making the buy-back necessary.

The buy-back will also allow employees to cash out, a challenge for many startups as delayed IPOs have kept many founders and employees rich only on paper.

That's helped create an active market for those shares on the private market, said Paul Maguire, managing partner at Iron Edge VC, which set up funds to invest in startup shares. Whether on the public or private market, buy-back deals were often a big endorsement of a company, he said, without knowledge of this deal.