Analysis: Zombie unicorns – Indian startups go from feast to famine By Reuters

By M. Sriram

MUMBAI (Reuters) – The valuation of Meesho, the Indian e-commerce rival of retail large Amazon (NASDAQ:), greater than doubled final yr to $5 billion, after marquee traders resembling SoftBank and Constancy pumped in a whole bunch of hundreds of thousands of {dollars}.

They aimed to trip a increase in India’s tech startups, which raised a report $35 billion in new funds in 2021, however the tide has since turned, as company governance issues loom massive for traders going through a brand new uncertainty in world markets.

“We’ve not seen a slowdown like this in at the least 5 to 6 years. It will be brutal,” mentioned Anand Lunia of enterprise capital agency India Quotient (NASDAQ:), an investor in additional than 70 startups since 2012.

“I anticipate to see lots of zombie unicorns. Firms which turned unicorns however don’t have any enterprise fashions have stopped hiring – they don’t seem to be dying, however will turn out to be irrelevant.”

Now Meesho is making an attempt to lift debt and reduce bills after efforts to lift contemporary funds of $1 billion floundered, making traders cautious of its month-to-month money burn of $45 million and stiff competitors, two folks aware of the talks instructed Reuters.

Meesho didn’t reply to a request for remark.

However its struggles are among the many first indicators of a painful future awaiting many Indian startups.

Plummeting Indian tech shares are a fear, however traders spooked by fears over company governance are stepping up scrutiny throughout due diligence efforts, which delays funding rounds, two enterprise capital executives mentioned.

And there are issues that valuations in India are already too excessive, even when startups’ enterprise fashions are being led by reductions and there’s a bleak outlook for income, they added.

That might slam the brakes on the unprecedented development and boring the lure of Indian startups.

Eight enterprise capital and startup executives mentioned fears had been rising {that a} funding crunch would decrease valuations, leaving much less money to attain development and convey job cuts.

Lunia mentioned he had instructed firms during which his agency has invested to make sure they maintain liquid money adequate for at the least 18 months, cut back spending and headcount, if mandatory.

Simply final week, BharatPe, an Indian funds startup backed by Sequoia Capital, mentioned it might overhaul governance practices following an inner evaluation.

One other startup Vedantu, which affords on-line tutoring programs and is backed by Tiger World with a valuation of $1 billion, laid off 200 workers this month in a “load rebalancing” transfer it mentioned was primarily based on development expectations.

Sometimes, Tiger has focused greater Indian startups, but it surely has now instructed bankers it’ll solely take into account offers involving these with a valuation of lower than $200 million, in a bid to cut back threat, mentioned two executives with direct information of the matter.

Tiger didn’t reply to queries from Reuters.

“PREPARE FOR THE WORST”

With greater than 60,000 startups in India, Prime Minister Narendra Modi has labelled the present decade a “techade”, during which he added, “New unicorns are arising each few weeks.”

Nonetheless, April was the primary month in additional than a yr that India had no new “unicorns”, a time period for startups with valuations above $1 billion.

Indian startups raised $5.8 billion in March and April, down about 15% from the corresponding interval final yr, knowledge from Enterprise Intelligence exhibits.

At a current personal dinner within the southern tech metropolis of Bengaluru, executives of U.S.-based Perception Companions, which manages greater than $90 billion in belongings, instructed Indian founders it might goal extra early stage firms and make investments much less due to the worldwide tech rout, mentioned a kind of who attended.

Perception didn’t reply to a request for remark.

Many tech firms globally have suffered in current weeks because the Ukraine battle and rising rates of interest hit investor sentiment.

Japan’s SoftBank, which is India’s greatest tech investor, with greater than $14 billion in investments, has reported a report lack of $26.2 billion at its Imaginative and prescient Fund funding arm.

November introduced India’s first disappointment with a tech IPO when SoftBank-backed funds app Paytm crashed 27% at its debut, triggering criticism it had overvalued the corporate with out prioritising profitability.

Paytm has plummeted an additional 62% since. And whereas Indian meals supply agency Zomato and sweetness retailer Nykaa had blockbuster listings, their shares are down 67% and 43% from their peaks, respectively.

Three Indian startup founders mentioned their traders just lately instructed them the times of straightforward cash had been over they usually should now present a transparent path to profitability.

The message, one of many founders says, is evident: “Put together for the worst, hope for the very best.”

Paytm inventory efficiency since preliminary public providing https://graphics.reuters.com/INDIA-STARTUPS/dwpkrndgzvm/chart.png