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Dispatch from Bangalore, last edition 2022 • TechCrunch


In 2014, Prayank Swaroop convinced the well-known venture firm Accel, where he worked as a collaborator, about future markets in India.

At the time, Flipkart and Snapdeal were the only two e-commerce startups in India that showed scale. Swaroop argues that as more and more Indians go online, opportunities will arise in food delivery, auto aftermarket, warehousing, trucking and social commerce among many others. other market sectors.

Swaroop, now a partner of the company, turned out to be right. Urban company operating in the field of domestic help is valued at more than 2 billion USD; Zomato and Swiggy are delivering food to millions of customers every month; Spinny and Cars24 are selling hundreds of thousands of cars every quarter; Social commerce startup DealShare is valued at over $2 billion, and Meesho is just $5 billion short.

Hundreds of millions of Indians have gone online in the past decade and more than 100 million are making transactions and purchases online every month. India, which has doubled its number of unicorns to more than 100 in the past two years, has attracted more than $75 billion in investments from tech giants Google, Meta and Amazon, and venture capital funds. Sequoia, Tiger Global, SoftBank, Alpha Wave, Lightspeed, and Accel over the past five years.

Swaroop presentation from 2014. (Image credit: Accel)

But as the local startup ecosystem closes out one of its toughest years, it’s now staring at another question it could have long considered benign: exits.

About half a dozen Indian consumer technology startups have gone public in the past year and a half, and all of them underperform on local stock exchanges. Paytm is down 60% this year, Zomato 58%, Nykaa 56%, Policy Bazaar 52% and Delhivery 38%.

This is despite Indian stocks outperforming China’s S&P 500 and CSI 300 Index this year. India’s Sensex – the local stock benchmark – is still up 3.4% this year, compared with a 19.75% drop for the S&P 500 and 21% for China’s CSI 300.

As the market changed direction this year, many Indian startups including MobiKwik and Snapdeal delayed their listing plans. According to two people familiar with the matter, Oyo plans to list in January of next year, which is unlikely to go ahead with that plan.

Flipkart, which is valued at $37.6 billion and is largely owned by Walmart, doesn’t plan to list until at least 2024, according to a person familiar with the matter. Byju’s, India’s most valuable startup, has no plans to list in 2023 and is instead forging ahead with a plans to list one of its subsidiaries, Aakashnext year, TechCrunch previously reported.

Those looking to push ahead with their plans to go public will face another hurdle: Several global public funds including Invesco, which has heavily funded pre-IPO rounds, are pulling out Indian market after being hit in China and other emerging markets this year, according to people familiar with the matter.

LP has long expressed concern about India’s failure to provide an exit, and the industry’s early efforts over the past two years appear to be out of the question.

Indian venture capital funds have historically received most of their exits through mergers and acquisitions. But even these exits are getting harder and harder.

An analyst at one of the leading venture capital funds in India said that for a long time, venture capital funds have supported early-stage SaaS startups with undervalued valuations. $25 million has a good chance of getting out. But as we’ve seen in a number of cases in recent months, the exit itself valued the startup at less than $25 million, making it difficult for SaaS investors to turn a profit.

II

On a recent evening at a closed-door meeting of several dozen industry figures at a five-star hotel in Bengaluru, many investors exchanged notes on the deals they were evaluating. Partners complain that the quality of startups has decreased even as the number of pitches increases.

Two well-known venture capital funds that run highly regarded accelerators or early-stage investment cohorts are struggling to find enough good candidates for their next rounds. said a person familiar with the matter.

I would argue that it is not only the quality of emerging startups that has suffered, but also investors’ appetites and mental models for what they think might work in the future. future.

Take cryptocurrencies as an example. The majority of Indian investors are already too late to invest in the web3 space. (You will find very few Indian names in the limited table of local exchanges CoinSwitch Kuber and CoinDCX and until recently blockchain extension company Polygon, as a featured VC at one of the world’s largest crypto VC funds recently showed me.)

Now, many companies in India that hired a number of crypto analysts and associates last year are withdrawing from the web3 market and have asked employees to focus on different areas, according to reports. people familiar with the matter.

Fintech is another area of ​​interest for investors. India’s central bank this year pushed a series of strict changes about how fintechs lend to borrowers. The Reserve Bank of India is also increasingly scrutinize who gets the license operate domestic non-banking financial companies according to moves that have sent a shock to investors.

Instead, many venture capitalists are increasingly pursuing opportunities to back banks. Accel and Quona recently supported Shivalik Small Finance Bank. Many people are considering investing in SMB Bank of India, one of the banks that has actively cooperated with fintech in the South Asian market, TechCrunch Report earlier this month.

Investor enthusiasm for the edtech market has also cooled after reopening schools toppled giants Byju’s, Unacademy and Vedantu.

According to market intelligence firm Tracxn, Indian startups have raised $24.7 billion this year, down from $37 billion last year. The financial crisis and market dynamics have prompted startups to lay off up to 20,000 employees this year.

More than a dozen investors I spoke to believe the financial crisis won’t go away until at least the third quarter of next year even though most of the investors chasing India are holding record amounts of dry powder. green.

As we head into the new year, some investors will reassess their beliefs, and many are convinced that some round of discounts on major startups is imminent. But many star unicorn founders aren’t willing to cut their valuation, in part because they believe it will drive some talent away. PharmEasy, valued at $5.6 billion, has been given new funding at a lower valuation of $3 billion this year, according to two people familiar with the matter. (PharmEasy did not respond to a request for comment.)

“The year 2022 is off to a strong start and it looks like for a while the Indian venture capital market will be subject to different gravitational forces than the US and China, which are seeing serious drop, but this did not happen. Sajith Pai, an investor at Blume Ventures, said the Indian market is ultimately subject to the same macro headwinds as the US and Chinese venture markets.

Pai said growth-stage deals accounted for the bulk of funding last year and have seen a 40-50% decline this year. “The decline was mainly due to growth funds pausing investments because of the multiples in the wealthy private market relative to their peers and the weak unit economics of growth companies. chief.”

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