In 2014, Prayank Swaroop pitched India’s future market to renowned venture capital firm Accel, where he was a partner.
At the time, Flipkart and Snapdeal were the only two e-commerce startups of any size in India. Swaroop noted that as more Indians come online, opportunities will arise in food delivery, automotive aftermarket, warehousing, road freight and social commerce among many other market segments.
Swaroop is now a partner in the firm, and it turns out he was right. Urban Company, a housekeeping service, is valued at more than $2 billion; Zomato and Swiggy deliver meals to millions of customers each month; Spinny and Cars24 sell hundreds of thousands of cars each quarter; social commerce startup DealShare is valued at more than $2 billion, while Meesho is closer to $5 billion.
Over the past decade, hundreds of millions of Indians have gone online, and more than 100 million people transact and shop online every month. The number of unicorns in India has doubled to more than 100 in the past two years, attracting investments from tech giants Google, Meta and Amazon, as well as venture funds Sequoia Capital, Tiger Global, SoftBank, Alpha Wave, Lightspeed and Accel. Over $75 billion in investments. the past five years.
Swaroop 2014 talk. (Image source: Accel)
But as the local startup ecosystem wraps up one of its toughest years, it is now staring at another problem that has long been considered benign: exits.
About a half-dozen Indian consumer tech startups have gone public in the past year and a half, but they have all performed poorly on the local stock exchange. Paytm is down 60% this year, Zomato is down 58%, Nykaa is down 56%, Policy Bazaar is down 52% and Delhivery is down 38%.
Although the Indian stock market has outperformed the S&P 500 and China’s CSI 300 this year. India’s Sensex, the local stock benchmark, is still up 3.4% for the year, while the S&P 500 is down 19.75% and China’s CSI 300 is down 21%.
Many Indian startups, including MobiKwik and Snapdeal, have delayed their plans to go public as the market’s direction has changed this year. Oyo, which plans to go public in January, is unlikely to go ahead with the plan, according to two people familiar with the matter.
Flipkart, which is valued at $37.6 billion and is majority-owned by Walmart, will not go public until at least 2024, according to a person familiar with the matter.India’s most valuable startup Byju’s doesn’t plan to go public in 2023, pushes ahead Plans to list one of its subsidiaries, Aakashnext year, TechCrunch previously reported.
Those hoping to move ahead with listing plans will face another hurdle: Several global public funds, including Invesco, are said to be pulling out of India after being hammered this year by China and other emerging markets, which are keen to prepare for IPOs. previous rounds of financing. Informed sources.
Limited partners have long expressed concern that India does not offer exits, and the industry’s early forays over the past two years appear to have been nothing to write home about.
Historically, Indian venture funds have seen the most exits through M&A. But even those exports are getting harder to come by.
Venture capital firms backing early-stage SaaS startups at sub-$25 million valuations have long stood a chance of getting a good exit, according to an analyst at one of India’s top venture funds. 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.
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At a private gathering of dozens of industry figures at a five-star hotel in Bengaluru on a recent evening, many investors exchanged views on deals they had been evaluating. Partners complain that while pitches have surged, the quality of startups has declined.
Two high-profile venture funds that run highly regarded accelerators, or early-stage investment cohorts, are struggling to find good enough candidates for their next tranche of investments, people familiar with the matter said.
I would argue that it’s not just the quality of new startups taking a hit, it’s investors’ appetite and their mindset about what they think might work in the future.
Take cryptocurrencies as an example. The vast majority of Indian investors are too late to invest in the web3 space. (In the market capitalization tables of local exchanges CoinSwitch Kuber and CoinDCX, you’ll find few Indian names, and until recently blockchain scaling firm Polygon, also a prominent VC at one of the world’s largest crypto VC funds, recently reported to I pointed it out.)
According to people familiar with the matter, many Indian companies that hired some encryption analysts and assistants last year are now withdrawing from the web3 market and asking employees to specialize in different areas.
Fintech is another area investors are focusing on.The RBI this year introduced a a stringent series of changes How fintech companies provide loans to borrowers.The Reserve Bank of India is also increasingly Review who is licensed Operating a non-bank financial company in the country Shockwaves for investors.
Many venture capitalists are now increasingly chasing opportunities in favor of banks. Accel and Quona recently backed Shivalik Small Finance Bank. Many are considering investing in SBM Bank India, one of the banks active in partnering with fintechs in the South Asian market, TechCrunch reported earlier this month.
One investor described the trend as a “hedge” for exposure to fintech.
Investor enthusiasm for the edtech market has also cooled after school reopening toppled giants Byju’s, Unacademy and Vedantu.
Indian startups raised $24.7 billion this year, down from $37 billion last year, according to market intelligence firm Tracxn. Tight funding and market dynamics have prompted startups to lay off as many as 20,000 workers this year.
More than a dozen investors I spoke with believe that while most investors chasing India are sitting on record amounts of dry powder, the funding crunch won’t dissipate until at least the third quarter of next year.
As we head into the new year, some investors will be reassessing their beliefs, with many believing that funding rounds for large startups are just around the corner. But many star unicorn founders are reluctant to cut valuations, in part because they think it will drive away some talent. PharmEasy, valued at $5.6 billion, has raised fresh capital this year at a valuation of just under $3 billion, according to two people familiar with the matter. (PharmEasy did not respond to a request for comment.)
“2022 is off to a strong start, and for a while it looked like the Indian venture capital market would be subject to a different gravitational pull than the U.S. and China, which are experiencing a sharp decline, but that’s not the case. Sajith Pai, investor at Blume Ventures, said the Indian market Ultimately subject to the same macro headwinds as the US and China risk markets.
Growth-stage deals, which accounted for the bulk of funding last year, are down 40-50% this year, Pai said. “The decline is largely due to growth funds pausing investing as private markets trade at higher price-to-earnings ratios and growth-stage companies have weaker unit economics compared to public markets.”
