He aimed to accelerate India’s tech startups, which raised a record $35 billion in new funds in 2021, but the tide has since turned, as global markets face a new uncertainty in corporate governance for investors. The concerns are big.
“We haven’t seen a slowdown like this in at least five to six years. It’s going to be brutal,” said Anand Lunia of venture capital firm India Quotient, an investor in over 70 startups since 2012.
“I expect to see a lot of zombie unicorns. Companies that became unicorns, but have no business model, have stopped hiring – they’re not dying out, but will become irrelevant.”
Two people familiar with the conversation told Reuters that Meesho is now looking to raise debt and cut expenses after a new $1 billion fund-raising effort.
Meesho did not respond to a request for comment.
But its struggles are among the first signs of a painful future awaiting many Indian startups.
Two venture capital executives said the fall in Indian tech stocks is a concern, but fears of corporate governance are scrambling investors during due diligence efforts, delaying funding rounds.
And there are concerns that valuations in India are already too high, even when startups’ business models are being led by discounts and a bleak outlook for revenue, he said.
This could put the brakes on unprecedented growth and reduce the attractiveness of Indian startups.
Eight venture capital and startup executives said there were growing fears that the lack of funding would lead to lower valuations, less cash to drive growth, and job cuts.
Lunia said he had asked companies his firm has invested in to ensure they have enough cash for at least 18 months, reducing expenses and headcount if necessary.
Last week, BharatPe, an Indian payments startup backed by Sequoia Capital, said it would change governance practices after an internal review.
Another startup Vedantu, which offers online tutoring courses and is backed by Tiger Global with a valuation of $1 billion, this month laid off 200 employees in a “load rebalancing” move, based on growth expectations.
Typically, Tiger has targeted large Indian startups, but it has now told bankers that it will only consider deals with valuations of less than $200 million to mitigate risk, two executives with direct knowledge of the matter said. said.
Tiger did not respond to questions from Reuters.
“prepare for the worst”
With over 60,000 startups in India, Prime Minister Narendra Modi has dubbed the current decade “taked”, which, he said, has “new unicorns coming out every few weeks.”
However, April was the first month in more than a year when there were no new “unicorns” in India, a term for startups that were valued at more than $1 billion.
Data from Venture Intelligence shows that Indian startups raised $5.8 billion in March and April, down about 15% from the same period last year.
At a recent private dinner in the southern tech city of Bengaluru, executives from US-based Insight Partners, which manages more than $90 billion in assets, told Indian founders it would target more early-stage companies and Will invest less due to global technology route. said one of the participants.
Insight did not respond to a request for comment.
Many tech companies globally have suffered in recent weeks as the Ukraine conflict and rising interest rates dented investor sentiment.
Japan’s SoftBank, which is India’s largest tech investor, posted a record $26.2 billion loss in its Vision Fund investment arm, with investments of more than $14 billion.
November brought India’s first disappointment with a tech IPO when SoftBank-backed payments app Paytm crashed 27% on its debut, triggering criticism that it overvalued the company without prioritizing profitability.
Paytm has since registered a further drop of 62%. And while Indian food delivery firm Zomato and beauty retailer Nykaa had blockbuster listings, their shares are down 67% and 43% respectively from their peak.
Three Indian startup founders said their investors recently told them that the days of easy money were over and they should now show a clear path to profitability.
One of the founders says the message is clear: “Be prepared for the worst, hope for the best.”