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Indian startups reeling from lack of funding, layoffs and lackluster public debuts • TechCrunch

Indian startups reeling from lack of funding, layoffs and lackluster public debuts • TechCrunch

Indian startups reeling from lack of funding, layoffs and lackluster public debuts • TechCrunch

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In 2014, Prayank Swaroop presented a pitch to the well-known venture capital firm Accel, where he worked as an associate, on future markets in India.

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At the time, Flipkart and Snapdeal were the only two e-commerce startups in India that showed any semblance of scale. Swaroop argued that as more Indians go online, opportunities will arise in food delivery, automotive aftermarket, warehousing, road freight and social commerce among many. other areas of the market.

Swaroop, now a partner in the firm, turned out to be right. Urban Company, which operates in the domestic help sector, is valued at more than $2 billion; Zomato and Swiggy deliver food to millions of customers every month; Spinny and Cars24 sell hundreds of thousands of cars every quarter; Social commerce startup DealShare is valued at over $2 billion and Meesho at just under $5 billion.

Hundreds of millions of Indians have gone online over the past decade and more than 100 million are transacting and shopping online every month. India, which has doubled its pool of unicorns to more than 100 in the past two years, has attracted more than $75 billion in investment from tech giants Google, Meta and Amazon and venture capital funds Sequoia, Tiger Global, SoftBank, Alpha Wave, Lightspeed and Accel over the past five years.

Presentation of Swaroop from 2014. (Image credits: Accel)

But as the local startup ecosystem winds down one of its toughest years, it is now tackling another issue it has long dismissed as benign: exits.

About half a dozen Indian consumer tech startups have gone public in the last year and a half and all are performing poorly on local stock exchanges. Paytm is down 60% this year, Zomato down 58%, Nykaa down 56%, Policy Bazaar down 52% and Delhivery down 38%.

This is despite Indian stocks outperforming the S&P 500 and China’s CSI 300 this year. India’s Sensex – the local stock market benchmark – remains up 3.4% this year, compared to a 19.75% drop in the S&P 500 and 21% in China’s CSI 300.

As the market changed direction this year, many Indian startups, including MobiKwik and Snapdeal, delayed their listing plans. Oyo, who planned to enroll in January next year, is unlikely to go ahead with the plan, according to two people familiar with the matter.

Flipkart, valued at $37.6 billion and majority-owned by Walmart, does not expect to list until at least 2024, according to a person familiar with the matter. Byju’s, India’s most valuable startup, does not plan to go public in 2023 and is instead moving ahead with a plan to list one of its subsidiaries, Aakash, next year, had previously reported TechCrunch.

Those looking to move forward with their IPO plans will face another hurdle: several global public funds, including Invesco which ardently fund pre-IPO rounds, are pulling out of the Indian market after have been hammered in China and other emerging markets this year, according to people familiar with the matter.

LPs have long expressed concerns that India is not delivering releases and the industry’s first attempts over the past two years seem nothing out of the ordinary.

Indian venture capital funds have historically secured most exits through mergers and acquisitions. But even these outlets are increasingly difficult to find.

An analyst from one of India’s leading venture capital funds said that for a long time, VCs backing SaaS startups at a stage below $25 million had a chance of making good exits. But as we’ve seen in some cases in recent months, the exit itself values ​​the startup at less than $25 million, making it difficult for SaaS investors to turn a profit.

II.

On a recent evening at a private meeting of a few dozen industry figures at a five-star hotel in Bengaluru, many investors were exchanging notes about the deals they had assessed. Partners have complained that the quality of startups has dropped even as the volume of pitches has increased.

Two leading venture capital funds that run reputable accelerators or early-stage investment cohort programs are struggling to find enough good candidates for their next batches, people familiar with the matter said.

I will argue that it’s not just that the quality of emerging startups has taken a hit, it’s also investors’ appetites and mental models for what they think might work in the future.

Take cryptography, for example. The vast majority of Indian investors have arrived too late to invest in the web3 space. (You will find very few Indian names in the cap tables of local exchanges CoinSwitch Kuber and CoinDCX and until recently blockchain scaling company Polygon, as a top VC in one of the largest crypto-VC funds in the world pointed the finger at me recently.)

Now many Indian companies that had hired a number of crypto analysts and associates last year are pulling out of the web3 market and have asked staff to focus on different sectors, according to people familiar with the case.

Fintech is another area of ​​concern for investors. India’s central bank this year imposed a string of stringent changes to the way fintechs lend to borrowers. The Reserve Bank of India is also increasingly scrutinizing who gets the license to operate non-bank financial companies in the country, which has sent shockwaves to investors.

Many venture capitalists are now increasingly looking for opportunities to support banks. Accel and Quona recently backed Shivalik Small Finance Bank. Many are considering investing in SBM Bank India, one of the banks that has aggressively partnered with fintechs in the South Asian market, TechCrunch reported earlier this month.

One investor described the trend as a “hedge” against fintech exposure.

Investor enthusiasm for the edtech market also cooled after the reopening of schools toppled giants Byju’s, Unacademy and Vedantu.

Indian startups have raised $24.7 billion this year, up from $37 billion last year, according to business intelligence firm Tracxn. The funding crisis and market dynamics have prompted startups to lay off as many as 20,000 employees this year.

More than a dozen investors I’ve spoken to believe the funding crunch won’t go away until at least the third quarter of next year, despite the fact that most investors chasing India are sitting on record quantities of dry powder.

As we enter the new year, some investors will reevaluate their beliefs and many are convinced that several down rounds for big startups are on the horizon. But many star unicorn founders aren’t willing to take a haircut into their ratings, in part because they think it will drive away some talent. PharmEasy, valued at $5.6 billion, was offered new capital at a valuation of less than $3 billion this year, according to two people familiar with the matter. (PharmEasy did not respond to a request for comment.)

“2022 started strong, and it looked for a time that the Indian venture capital funding market would be subject to different gravitational pulls than the United States and China, which were in dramatic declines, but it shouldn’t be. The Indian market ultimately turned out to be subject to the same macro headwinds as the US and Chinese venture capital market,” said Sajith Pai, investor at Blume Ventures.

Pai said growth-stage deals accounted for the majority of funding last year and have seen a 40-50% decline this year. “The decline was primarily due to growth funds which suspended investments because multiples in private markets were rich relative to their public peers and weak growth-stage company unit economics.”

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