If you are not doing something with those three magical words: generative artificial intelligence, the funding slump for companies in Bengaluru is continuing unabatedly at all stages. It has become evident to me during my meetings with a number of leading business owners, CEOs, and venture capitalists over the past several weeks that major secondary share sales are still taking place despite the funding slowdown, and more such transactions are being planned for the remainder of the year.
ChrysCapital, a prominent private equity fund, invested $100 million in Lenskart on Thursday, confirming a news report from ETtech from February. This effectively ended a $600 million investment in Lenskart, $450 million of which came from the selling of secondary shares. By purchasing shares from shareholders including SoftBank, Premji Invest, and Kedaara Capital in March, the Abu Dhabi Investment Authority (ADIA) invested $500 million in Lenskart. In a secondary share sale, current shareholders sell their shares to new shareholders rather than depositing the proceeds in the business’s bank account.
What Motivates This?
A number of factors, such as the state of the global macroeconomy and a resetting of values, make it more and more difficult to obtain new capital, namely primary investment. Existing investors who want to sell off some of their previous stakes are open to such arrangements in this scenario.
What has transpired over the past several months is that it is now obvious which assets are performing well despite the lack of finance, and international investors are willing to participate in these companies at a time when deal-making has ceased. While we recently finished a secondary deal, a larger secondary sale is planned and will occur in the coming months, according to the founder of one of the companies ETtech spoke to.
Our talks with some of the firms—which have the financial resources to weather the funding freeze—show that they are looking into methods to make partial exits for their investors since they do not want to raise additional capital because they might not get the greatest value for it.
In addition to the $600 million sale for Lenskart, the Pune-based new-age logistics company Xpressbees saw its existing backer Elevation Capital sell a larger portion of its stock to Malaysia’s Khazanah Nasional.
Elevation Capital had conducted secondary sales in the past as well. When it became a unicorn last year, a portion of its shares were sold to new investors as well as included in a $300 million financing round.
Similar transactions are being planned at FirstCry, where its main investor is preparing to sell a portion of its share, according to a report by ETtech. Walmart, the parent company of Flipkart, is aiming to provide a full exit to the early investors in the e-commerce company, Tiger Global and Accel, in a deal worth at least $1.5 billion.
Action With Sovereign Money
These agreements are being led by sovereign wealth funds, which are also actively negotiating with late-stage businesses for potential future investments. They are looking for large-ticket deals of at least $100 million, whether primary or secondary.
These funds’ cost of capital is still low, and they have a very long time horizon for making such investments. Startups are mostly seeking these funds right now for any sizeable investment, according to a top industry official involved in funding discussions.
The $500 million that came from ADIA, the Gulf sovereign wealth fund, was part of the $600 million that was thrown at Lenskart. Investing giants Temasek, Khazanah Nasional, GIC, and Qatar Investment Authority, according to sources, are in active discussions to increase their stakes in both current and future investments through a combination of secondary and primary share sales.
This should keep the action alive in India’s startup ecosystem.