Indian Unicorns And Their Valuations Decline.

Before the pandemic, the e-commerce industry experienced a significant valuation correction, with businesses like Snapdeal, Shopclues, and Paytm Mall losing their billion-dollar status as a result of valuation reductions by their investors. In addition, consumer internet businesses like Quikr and Hike, which had previously raised multi-million dollar rounds, lost their billion-dollar status as a result of investor markdowns.

Indian Unicorns and their valuation markdown.

Private investors have reduced the value of some Indian startups. In the Indian startup ecosystem, this is not a new phenomenon. The financing winters and the global tech stock crash have caused the valuations of some billion-dollar firms to get slashed and burned.

According to a top executive from a consulting firm that specialises in unicorns, valuation corrections result from several causes, including public market corrections, businesses that struggle to demonstrate profitability, and the funding winter. CY2022 is regarded as an exceptional year with all three of these reasons anticipated to contribute to private market corrections, even though previous funding winters have had an impact on valuations.

Venture capital and markdown

The majority of major investors in Indian startups are international tech investors, and they frequently compare the values of some of these startups to those of tech stocks traded on the US, European, Chinese, and Japanese stock exchanges. As a result, if IT stocks decline, they (the global VCs) would reduce their Indian holdings, which is a trickle-down impact from public to private markets, the consultant stated.

Approximately 105 businesses in India became unicorns between CY18 and CY22. There are 138 unicorns in India, 70 of which were founded by Indian co-founders but have their headquarters abroad, and 68 of which have their headquarters in India.

FE also noted that unicorn founders will refrain from seeking outside equity funding in the current environment until their businesses have demonstrated favourable unit economics or significant increases in user base or revenues. The remainder may raise their breakaway through layoffs or use venture debt as an alternative for opex spending.

A sector’s or region’s potential for producing unicorns can act as a soft benchmark for investors, according to Pankaj Makkar, managing director of Bertelsmann India Investments (BII), which has several unicorns in its portfolio.

“The majority of companies with annual valuations of more than $1 billion shouldn’t be worth more than $800 million. We had exceptionally high valuations during the last two years on both a domestic and international level. And some of that will now reflect on the Indian companies owing to the US tech market correction, so down rounds may occur,” he added.

Several Indian firms may lose their unicorn status due to declining funding and a decline in late-stage agreements.

Ola- On Wednesday, it was reported that Vanguard marked down Ola’s valuation was reduced by 35% by Vanguard to $4.8 billion. The price cut occurs at a time when the two industry giants Ola and Uber have not been expanding as quickly as they formerly did until 2019 or 2020. Ola has not yet released its FY22 financial data.

However, a 63% drop in scale was reported to Rs 983.2 crore in FY21 from Rs 2662.63 crore in FY20. According to its revenue, the business’ losses decreased by 49.4% YoY to Rs 1,116.6 crore.

Vanguard cut its stock in Ola by $33,865,000 at the end of February this year from its August 2022 valuation of $51,825,000. Earlier, it reduced the valuation of the ride-hailing service by 45% in 2020 and by an additional 9.5% in 2021.

Swiggy- Invesco reportedly cut Swiggy’s estimated value in half, to $5.5 billion, a few days ago. Invesco, who led Swiggy’s most recent round with a valuation of $10.7 billion in January 2022, almost cut the valuation in half to $5.5 billion.

BYJU’S- The most valuable unicorn is BYJU’S, an online education company valued at $22 billion. Byju was valued by BlackRock at $11.5 billion instead of $22 billion.

Pine Labs- Pine Labs, a unicorn fintech company, has seen its valuation cut by Neuberger Berman by 38% to $3.1 billion from $5 billion.

PharmEasy- PharmEasy, a major e-pharmacy, had its valuation reduced by 21%, from $5.6 billion to $4.4 billion. Despite suffering a significant loss, PharmEasy was able to secure convertible notes from its current investors at the end of October of last year for INR 750 Cr.

It is important to note that both unicorns had started the initial public offerings (IPOs) process, with PharmEasy even submitting its draught red herring prospectus (DRHP) to SEBI for a public offering of INR 6,250 Cr.

It’s interesting to note that Neuberger Berman has stated that it will keep slashing the valuation of its important Indian portfolio companies to finance a range of acquisitions worldwide.

It is anticipated that a growing number of startups with exorbitant valuations will experience a correction in their valuation in the days to come as the economic recession continues.

In conclusion, the recent valuation reductions that Indian unicorns have undergone reflect the startup ecosystem’s dynamic character. Even if difficulties and setbacks are inevitable along the way, these businesses have the chance to grow as a result of their experiences. These unicorns can reclaim investor confidence and pave the way to success with ongoing innovation, strategic decision-making, and fortitude.

Proofread & Published By Naveenika Chauhan