Asset Managers Trim Valuations of High-Profile Indian Startups in their Portfolios
According to reports, global asset managers are trimming their valuations of high-profile Indian startups in their portfolios, with write-downs approaching 50% for former investor favorites such as Byju’s and Swiggy as per US securities documents. The new estimates highlight the changing fortunes of Indian startups after a boom in 2021 and early 2022 created 60 so-called unicorns worth more than $1 billion. They also set the stage for loss-making companies to go through so-called down shifts, where funding is done at lower valuations than before.
Changing Fortunes of Indian Startups
Indian startups have been booming since 2021 creating 60 so-called unicorns worth over $1 billion, but in 2022, things began to change. With investors buying shares in startups at high valuations in the world’s most populous country in hopes that a burgeoning middle class will lead to a surge in consumption, Indian startups, one after the other, started laying off workers and slashing marketing spending and consumer rebates to preserve capital. Abundant with funds, startups have spent lavishly on marketing. Byju was paid to put his name on the shirts of the Indian cricket team, Swiggy and fantasy sports platform Dream 11 were among the sponsors of Indian Premier League cricket. India’s top 50 advertisers in 2021 included 15 startups in industries such as education, financial services, fantasy sports, and cryptocurrency.
Valuations of Startups
The recent filings with the US Securities and Exchange Commission show that Invesco and BlackRock reduced their valuations of Byju from $22 billion to $11.5 billion and of Swiggy from $10.7 billion to $5.5 billion. Vanguard reduced the valuation of start-up Ola by about 35% to $4.8 billion, while financial services start-up Pine Labs saw its valuation reduced by 40% to $3.1 billion by Neuberger Berman. Janus Henderson has cut the valuation of healthcare start-up PharmEasy in half to $2.8 billion. So-called growth-phase operations were equally expensive, with Series C valuations up 141% from 2019 to $273 million, while Series D valuations increased 116% to $636.8 million.
Cutting Costs and Closing Businesses
Startups are now cutting discounts, threatening their ability to attract more consumers, and shutting down fledgling lines of business. Swiggy has shut down its premium meat and grocery delivery service. Ola closed his food and grocery businesses. E-commerce firm Meesho, backed by SoftBank, has stopped delivering groceries, while online education start-up Unacademy has closed its operation in primary and secondary schools.
Raising Money Becomes Difficult
With funding prospects dwindling, startups are now cutting discounts that threaten their ability to attract new customers. Some of the big startups are trying to raise money by issuing convertible notes that give investors the right to swap bonds for shares during their next round of fundraising, a way to bet their valuations will be higher by that point. Unicorns like social media company ShareChat and online wholesaler Udaan have taken this route in the past.
Further Insights
Cutting costs and having business models that are sustainable is one thing, but growth is another thing that must happen for startups. Consumers in India have been heavily influenced by discount-based models, so without VC-funded rebates, it’s hard to grow businesses in India. The growth rate has slowed as startups are building more sustainable businesses and offering fewer discounts, said Brij Singh, general partner at venture capital firm Rebright Partners. Anand Prasanna, managing partner at venture capital firm Iron Pillar, said, “This will certainly create more challenges for downside companies to immediately lift new shifts”.
Summary
High-profile Indian startups in portfolios of global asset managers are experiencing write-downs of valuations, leading to the downshift of loss-making enterprises. This takes place after a boom in early 2022 that created 60 Indian unicorns worth over $1 billion. The diminished valuations and changing fortunes of Indian startups have forced companies to lay off workers, cut marketing spending, and consumer rebates, thus preserving capital. Raising funds has become difficult, and discount cuts may negatively affect customers’ attraction for new products and services. Startups must ensure they build sustainable businesses that offer growth and free itself from discount-based models.
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Global asset managers are trimming their valuations of high-profile Indian start-ups in their portfolios, with write-downs approaching 50% for former investor favorites such as tutoring firm Byju’s and food delivery service Swiggy, show i US securities documents.
The new estimates highlight the changing fortunes of Indian startups after a boom in 2021 and early 2022 created 60 so-called unicorns worth more than $1 billion. They also set the stage for loss-making companies to go through so-called down shifts, where funding is done at lower valuations than before.
“Startups are cutting costs and sitting still, but when they eventually come to market to raise money, there will be markdowns,” said Rutvik Doshi, chief executive officer of venture capital firm Athera Venture Partners.
Recent filings with the US Securities and Exchange Commission show that Invesco and BlackRock reduced their valuations of Byju from $22 billion to $11.5 billion and of Swiggy from $10.7 billion to $5.5 billion.
This article is taken from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, economics, business and international affairs. Our correspondents and external commentators from around the world share their insights on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest-growing publicly traded companies from 11 economies outside Japan.
Vanguard reduced the valuation of start-up Ola by about 35% to $4.8 billion, while financial services start-up Pine Labs saw its valuation reduced by 40% to $3.1 billion by Neuberger Berman. Janus Henderson has cut the valuation of healthcare start-up PharmEasy in half to $2.8 billion.
The markdowns exacerbate woes for Indian start-ups, many of which have laid off workers and slashed marketing spending and consumer rebates to preserve capital.
Venture investors have bought shares in startups at high valuations in the world’s most populous country in hopes that a burgeoning middle class will lead to a surge in consumption. Indian start-ups have also benefited from comparisons with China, where tight government regulation of tech companies has raised concerns among global investors.
Data group Tracxn estimates that the median valuation of Series A – or institutional first round – deals in India has increased by 68% since 2019 to $30 million in 2022. Series B startups were valued at around $84 million, up 58% from 2019 So-called growth-phase operations were equally expensive, with Series C valuations up 141% from 2019 to $273 million, while Series D valuations they increased 116% to $636.8 million.
Abundant with funds, startups have spent lavishly on marketing. Byju was paid to put his name on the shirts of the Indian cricket team and was one of the sponsors of the FIFA World Cup. Swiggy and fantasy sports platform Dream 11 were among the sponsors of Indian Premier League cricket.
India’s top 50 advertisers in 2021 included 15 startups in industries such as education, financial services, fantasy sports and cryptocurrency, according to Madison Ad Agency. Byju’s and Dream11 have outspent global powerhouses like Procter & Gamble, Mondelez, Coca-Cola, Pepsi and Nestle.
With funding prospects dwindling, startups are now cutting discounts, threatening their ability to attract more consumers, and shutting down fledgling lines of business.
Swiggy has shut down its premium meat and grocery delivery service. Ola closed his food and grocery businesses. E-commerce firm Meesho, backed by SoftBank, has stopped delivering groceries. Online education start-up Unacademy has closed its operation in primary and secondary schools.
“The growth rate has slowed as startups are building more sustainable businesses and offering fewer discounts,” said Brij Singh, general partner at venture capital firm Rebright Partners. “Consumers in India have been heavily influenced by discount-based models. And without VC-funded rebates, it’s hard to grow businesses in India.”
Some big startups are trying to raise money by issuing convertible notes that give investors the right to swap bonds for shares during their next round of fundraising, a way to bet their valuations will be higher by that point. Unicorns like social media company ShareChat and online wholesaler Udaan have taken this route in the past.
“Many startups are cutting costs and have healthy business models,” said Shivakumar Ramaswami, founder of investment bank IndigoEdge. “But, if that growth doesn’t happen, I think they will bear some pain on the valuation front.”
Questions about the purchasing power of Indian consumers were raised this year when food delivery start-up Zomato closed operations in 225 Indian cities, citing low demand. Research firm Redseer estimates that online retail in India grew 27% on the year in 2022 to 4.4 trillion rupees ($53 billion), down from 45% growth in 2021 when the pandemic has fueled the demand for digital services.
“THE [Covid-driven] the lift has gone for a variety of companies and their growth has suffered. So, valuations have come down to reflect that,” said Anand Prasanna, managing partner at venture capital firm Iron Pillar. “This will certainly create more challenges for downside companies to immediately lift new shifts.”
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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