Global investors drastically lower Indian start-up values

Markdowns for the meal delivery service Swiggy and edtech company Byju’s are close to 50%.

Global asset managers are downgrading the value of well-known Indian start-ups in their portfolios, with writedowns of close to 50% for companies like tutoring firm Byju’s and food delivery service Swiggy that were formerly favorites of investors, according to US securities filings. The updated estimates show how Indian start-ups’ fortunes have changed after a boom in 2021 and early 2022 gave rise to 60 “unicorns” with valuations of more than $1 billion. Additionally, they prepare loss-making businesses for “down rounds,” in which financings are completed at lower valuations than previously.

Rutvik Doshi, managing director at venture capital company Athera Venture Partners, predicted that down rounds will occur when startups eventually entered the market to raise money. According to recent filings with the US Securities and Exchange Commission, Invesco and BlackRock reduced their estimates of Swiggy from $10.7 billion to $5.5 billion and Byju’s from $22 billion to $11.5 billion.

The author of this article is Nikkei Asia, a global journal with a distinctively Asian viewpoint on politics, the economy, business, and global affairs. While our Asia300 section offers in-depth coverage of 300 of the biggest and fastest-growing listed firms from 11 economies outside of Japan, our own correspondents and outside commentators from around the world provide their perspectives on Asia. Become a member | Group subscriptions Vanguard cut the valuation of the ride-hailing startup Ola by around 35% to $4.8 billion, and Neuberger Berman cut the valuation of the startup financial services company Pine Labs by 40% to $3.1 billion. PharmEasy’s valuation was cut in half by Janus Henderson, who reduced it to $2.8 billion. The markdowns make things worse for Indian start-ups, many of whom have already cut back on employee hiring, marketing budgets, and customer discounts to save money.

In the nation with the largest population, venture capitalists purchased startup interests at exorbitant prices in the anticipation that a growing middle class would stimulate demand. A comparison with China, where the government’s regulatory crackdown on technology companies alarmed foreign investors, helped Indian start-ups as well.

Eight Startups Graduate from Target Accelerator Program's Fifth Batch
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The median valuation of Series A, or first institutional round, acquisitions in India, according to data provider Tracxn, increased 68% from 2019 to $30 million in 2022. Series B start-up valuations were over $84 million, up 58% from 2019. ‘Growth-stage’ acquisitions were equally pricey, with Series C valuations rising 141% over 2019 to $273 million and Series D prices rising 116% to $636.8 million. Start-ups who were flush with cash spent extensively on marketing. In addition to being a sponsor of the Fifa World Cup, Byju’s paid to have its name placed on the Indian cricket team’s uniforms. Among the cricket league’s sponsors were Swiggy and the fantasy sports website Dream 11.

The top 50 advertisers in India in 2021 comprised 15 start-ups in industries like education, financial services, fantasy sports, and cryptocurrencies, according to the ad agency Madison. Such multinational behemoths as Procter & Gamble, Mondelez, Coca-Cola, Pepsi, and Nestlé were outspent by Byju’s and Dream11. Start-ups are currently lowering discounts, endangering their capacity to draw in additional customers, and closing out incipient business lines as funding prospects deteriorate.  Swiggy stopped offering its premium groceries and meat delivery service. Ola shut down its grocery and food divisions. Meesho, an online retailer funded by SoftBank, stopped delivering groceries. Unacademy, a startup in online education, closed its primary and secondary school operations. The growth rate has slowed down, according to Brij Singh, general partner at venture capital company Rebright Partners, since startups are creating more resilient businesses and offering fewer discounts.  

“Discount-led strategies have had a significant impact on Indian consumers. Additionally, it is challenging for enterprises to expand in India without VC funding. As a method to wager that their valuations would be higher by the time of their next fundraising round, some large start-ups are seeking funding by issuing convertible notes that give investors the ability to convert the instruments into equity. That approach has previously been used by unicorns like the social networking company ShareChat and the online wholesaler Udaan.

According to Shivakumar Ramaswami, founder of investment bank IndigoEdge, “many start-ups are cutting costs and have sound economic models.” But if that growth does not materialize, I believe they will experience some pain in terms of valuation.

This year, a food delivery start-up prompted concerns about Indian consumers’ purchasing power. Due to low demand, Zomato shut off operations in 225 Indian cities. Online retail in India is expected to have grown 27% year over year in 2022 to reach 4.4 trillion rupees ($53 billion), down from a surge of 45% in 2021 when the pandemic fueled demand for digital services. “A number of enterprises have lost the [Covid-driven] boost, which has hampered their expansion. For this reason, the values have decreased to reflect it, according to Anand Prasanna, managing partner at venture capital firm Iron Pillar. For the marked-down companies to promptly raise new up rounds, this will undoubtedly provide significant hurdles. A version of this article was first published by Nikkei Asia on May 25 2023. ©2023 Nikkei Inc. All rights reserved.

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