In 2014, BrianSwaroop made a presentation to Accel, where he was a partner, about future markets in India.
Snapdeal and Flipkart were the only e-commerce startups to achieve such scale at the time. Swaroop argues that Indians will increasingly go online for food delivery, automotive aftermarket and warehousing as well as social trading and road freight, among other market areas.
Swaroop, now a partner of the firm, proved right. Urban Company, an organization that provides domestic assistance, is valued over $2B. Zomato and Swiggy deliver meals to millions of people each month. Spinny and Cars24 also sell hundreds of thousands of vehicles each quarter. DealShare, a social commerce startup, is valued just below $5 billion.
Over 100 million Indians make online purchases every month and hundreds of millions have gone online in the past decade. India has seen its unicorn collection double to over 100 in the last two years. In the past five years, more than $75 billion has been invested by tech giants Google and Amazon, as well as venture funds Sequoia and Tiger Global, SoftBank and SoftBank. The past five.
He’s now looking at exits, a question he has long been able dismiss as innocuous as the local startup community shuts down for its toughest year.
In the last year and a quarter, around half a dozen Indian startups in consumer technology went public. All of them did poorly on local stock exchanges. Paytm is down 60%, Zomato is down 58% and Nykaa is down 56%. Policy Bazaar is also down 52%. Delhivery is down 38%.
Despite Indian stocks outperforming the S&P 500 this year and China’s CSI 300, this is not surprising. The Sensex, India’s stock index, is up 3.4% this year. This compares to a decline in the S&P 500 of 19.75% and 21% in China’s CSI 300.
Many Indian startups, including Snapdeal and MobiKwik, have delayed their plans to list because of the market’s recent direction change. According to two people familiar, Oyo, which had planned to list in January next, is unlikely to proceed with that plan.
According to a person familiar, Flipkart is valued at $37.6 billion, and Walmart is the majority owner. Flipkart isn’t expected to list until 2024. Byju’s, India’s most valuable startup, is not planning to list in 2023. Instead, they are moving forward with plans to list one of its subsidiaries, AkashTechCrunch reported that next year.
Those who are looking to make their IPO plans a reality will have to face another obstacle: Several public funds, including Invesco which are passionately funding preIPO rounds, are withdrawing from the Indian market. This is according to people on Facebook. This issue is not difficult to understand.
Long-standing concerns have been expressed by LPs about India’s inability to deliver exits. The early attempts made by the industry in the past two years seem to have been nothing to cheer about.
Indian venture funds were the ones that benefited most from exits via acquisitions and mergers. But even these exits are becoming more difficult to find.
One of India’s biggest investment funds claimed that venture investors who supported early-stage SaaS startup valuations below $25 million would have a better chance at achieving long-term success. 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.
A few dozen business leaders met in private at a Bengaluru five-star hotel to exchange notes on the deals they were considering. Partners complained that the startups are not of high quality despite having a lot of promotions.
Two prominent investment funds run excellent accelerators or early-stage investment pools programs. However, they are struggling to find the right candidates for their next batch of applicants, according to people familiar with this matter.
I would argue that it is not just the quality of emerging startups which has been affected, but also investors’ appetites and mental models for what they believe might work in the future.
Let’s take encryption as an example. The overwhelming majority of Indian investors have not yet invested in the Web 3 space. (You’ll see quite a few Indian names in the capital tables of local exchanges CoinSwitch Kuber and CoinDCX. Polygon, which was until recently a blockchain scaling firm, has mentioned me as a prominent VC on the web. One of the most important cryptocurrency VC funds in all of the world.
According to people familiar, many Indian companies who hired cryptocurrency analysts and partners last year are now shifting their focus away from the Web 3 Market and asking employees instead to work in different sectors.
Fintech is another area of concern for investors. India’s central banks paid this year series of drastic changesHow FinTech companies lend to borrowers. The Reserve Bank of India has also been growing in importance. Check who gets the licenseTo run non-bank financial firms in the country in moves that have It sent a shock to investorsThis makes them extremely concerned about how much conviction they think they have and how much underwriting they have for the sector.
Many venture investors are now looking to support banks instead. Quona and Accel have recently supported Shivalik Small Finance Bank. Many are trading in an SMB Bank India investment, which has partnered aggressively in the South Asian fintech market, TechCrunch reports. I reported earlier this month.
After the reopening at schools that defeated Vedantu, Unacademy and Byju’s, investors’ enthusiasm has cooled.
According to Tracxn, Indian startups have raised $24.7billion this year, a drop of $37 billion from last year. Market dynamics and the current funding crisis have caused many start-ups in India to lay off thousands of employees this year.
A majority of the investors who have spoken to me believe that the financing crunch will continue until at least the third quarter next year. This despite the fact that most of the investors chasing India are sitting on record amounts dry powder.
As we approach the new year, investors will be reviewing their convictions. Many are convinced that there are several bottom rounds for major startups. Meesho dismissed the idea of fundraising at a lower valuation earlier this year. According to two people familiar, PharmEasy is valued at $5.6billion and raised new capital at a value of less than $3billion this year. (PharmEasy has not responded to a request for comment.
2022 started strong and it looked for a while like the Indian market for project finance would be subject to different gravitational factors than the US or China, both of which were experiencing a significant decline. But this has not been the case. “The Indian market ultimately turns out to be exposed to the same macro headwinds as the venture market in the US and China,” said Sajith Pai, an investor at Blum Ventures.
Pai stated that growth-stage funding accounted for most of the funding last year, and has seen a 40-50% drop this year. “The decline was caused primarily by growth funds pausing investments because the multiples in private markets were rich compared to their public sector counterparts, and the unit economics of growth-stage firms were weak.”
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