Analysis – Once booming Indian startups face more pain as funding shortage worsens


M. Sriram

MUMBAI (Reuters) – India’s start-up has already led to job cuts and delayed share listings as investors consider rising valuations and slowing consumption growth, likely laying the groundwork for industry consolidation Corporate funding shortages may worsen.

Indian startups have raised just $2 billion in the first quarter of 2023. That’s 75% less than the same period last year and the smallest number of quarters in nearly three years, according to figures from data firm CB Insights.

At this run rate, startups could raise less than $10 billion this year, a far cry from the record $30 billion raised in 2021 and $20 billion in 2022.

The slowdown is a setback not only for start-ups, but also for Prime Minister Narendra Modi, who has praised such companies for their success, calling them the “backbone of the new India.” It could hurt India’s economic growth and job market.

VT Bharadwaj, a former managing director of India at Sequoia Capital who now heads venture capital firm A91 Partners, said, “This is not just a temporary dip, it’s a fundamental reset.” “I don’t think he will see another record fundraising year like 2021 again, at least for ten years.”

The prospect of a rapid increase in consumption both in the offline and India’s digital space has helped many startups record multi-billion dollar valuations in recent years, with the likes of Sequoia and Tiger Global hitting a 1.4. Betting big on cash-burning businesses to lure consumers in the country.billion people.

Global factors such as high interest rates and inflation are weighing on the investment climate in India and elsewhere. US start-up capital fell by about half in the first quarter to $32.5 billion, while in China it fell by 60% to $5.6 billion.

But Indian start-ups, which rely far more on foreign capital than their global peers, are under more severe pressure, with some executives saying investors have misjudged consumption growth. He said that one of the reasons was that he noticed that

India’s VC firm Blume Ventures said in an April report that consumption outside India’s top 30 million households has plummeted, driven by a “small set of superusers.”

Despite India’s multibillion-plus population, food delivery company Zomato has just 50 million annual transaction users, while government-backed digital money transfer service UPI has just 260 million. the report said.

“Indian start-ups are not serving 1 billion consumers. They are all selling to the same 100 million people. said Ankit Nagori, former CEO of Walmart’s e-commerce unit Flipkart. Now in the cloud he runs the kitchen startup Curefoods.

GRAPHICS: Startup funding drops to lowest level in almost 3 years –

Fewer deals, prospects for consolidation

In the first sign of discontent in the Indian market, investors and regulators questioned the unrealistic valuations of many startups after the 2021 flop listing of loss-making digital payments firm Paytm. appeared after

Since then things have gone from bad to worse.

Six investor sources and three startup founders told Reuters they expected funding conditions to deteriorate and many multi-billion dollar companies to cut valuations within two years. rice field.

In recent weeks, BlackRock has internally halved the valuation of its investment in Indian online education company Byju’s from $22 billion to $11.15 billion, while Invesco has cut the valuation of food delivery company Swiggy by a quarter. 1 down to $8 billion, according to disclosures from US investors.

Also, according to CB Insights, only 271 Indian startups raised capital in the first quarter of 2023, compared to 561 last year.

Japan’s SoftBank, which has led India’s fundraising boom for years, has made no new investments in the country in the past year as it awaits further revisions to its valuations, it said. Two people familiar with the plan say.

SoftBank did not respond to a request for comment. In 2021, he will have invested $3 billion and another $500 million in Indian companies in 2022, according to Reuters calculations.

Banker Sivakumar Ramaswami sees opportunity in the midst of all the hardships and, seeing a wave of consolidation, is setting up a new M&A desk at his technology-focused investment banking firm, Indigo Edge. increase.

“So many funded companies have stalled after reaching some scale. Everyone needs to find a home and many of these companies cannot go to IPO. are ready to work with them,” he said.

(Reporting by M. Sriram, Editing by Aditya Kalra and Muralikumar Anantharaman)

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