Why Are Investors Slashing Their Valuations In Indian Start-Ups? Is It A Sign That Founders Need To Think About The Actual Content Of Their Operations Rather Than Focussing On Vanity Matrices?

It has been halfway to the third year of this new decade. Let’s have a look at the entrepreneur circle of our country. But moving down the lane, make up your mind to witness the downfall of many great players of the Indian start-up system.

Let’s start with the great BYJU, which was onetime crowned with the title of the supreme player of the Indian Ed-tech platform.

In what looks to be further roadblocks for BYJU’s, US-based asset management BlackRock has allegedly dropped the edtech major’s valuation by a major part, three months after it dropped the value of investments in the Indian edtech giant.

In a regulatory statement with the US Securities and Exchange Commission for the fiscal quarter that ended March 31, BlackRock listed Byju’s at $8.2 billion, 62.7% less than the company’s $22 billion valuation. Previously, in February, the fund manager cut its investment in Byju’s in half. Back then, it had valued the firm at around $11 billion. This was a dangerous downward momentum from the $22 billion at which the edtech decacorn was last assessed in 2022.

The second position goes to the start-up that claims to be one of the cheapest online E-commerce platforms, Meesho.

Funds administered by Fidelity Investments have reduced the valuation of social commerce platform Meesho from March 31 to $4.4 billion in their book. This is a 10% decrease from the $4.9 billion valuation at which the international financial services giant bought Meesho in September 2021.

Notably, in December 2022, Fidelity’s crossover funds valued Meesho at $4.98 billion. Previously, Meesho was valued at $4.29 bn by 09.2022 by the investor.

The third goes to Pine Labs.

Funds run by the New York-based investment management firm Neuberger Berman reduced the worth of the shares they own in Pine Labs by 38% In May 2023. According to regulatory documents, Neuberger Berman funds lowered their interest in Pine Labs to $3.1 bn by 28.02.2023, from $5 billion when the establishment obtained funding in July 2021.

Neuberger Berman said it prefers to continue trimming its major Indian overweight portfolio entities to finance “a variety of purchases across select geographies.”

The fourth position is taken by the famous online med platform PharmEasy. Not one, but two investors, reduced their valuations in this start-up.

In May 2023, funds run by New York-based investment management firm Neuberger Berman reduced the valuation of their shares in PharmEasy’s parent company, API Holdings, by 21%. It lowered its value from $5.6 billion to $4.4 billion at the financing in October 2021. 

PharmEasy, which delayed its IPO last year, had difficulty raising fresh financing during the great tech slowdown. Based on its December burn rate, the e-med argued in February that PharmEasy’s financial runway had decreased to around a year.

Also, according to regulatory filings with the US Securities and Exchange Commission, global asset management firm Janus Henderson has further reduced the valuation of its investment in Mumbai-based online pharmacy PharmEasy’s parent company API Holdings.

Janus Henderson funds valued their interest in the firm at $2.7 bn by 31.03.2023, less than half of the $5.6 billion valuation assigned to PharmEasy at the financing in September 2021. Janus Henderson took part in the fundraising round. In May 2023, it was reported that the asset management valued the e-pharmacy firm at $2.8 bn by 31.12.2022.

The downgrade was caused by PharmEasy breaking the conditions of a loan covenant for the high-cost debt firm that had borrowed from Goldman Sachs.

The fifth one is the delicious competitor in the food-delivery sector, Swiggy, which has been favoured for huge discounts.

Swiggy‘s valuation has been decreased by 10% to $6.38 bn by March 31, 2023, by the US-based asset management firm Baron Capital Group. Swiggy’s valuation had been reduced by 34% to $7.1 bn by the end of 2022, according to a report published on May 16.

On May 9, it was announced that Invesco, the round’s main investor, had reduced the food-delivery company’s valuation by 33% to $5.5 billion from $8.2 billion, having reduced it from $10.7 billion. Swiggy’s shares were valued at INR 3,305 per share by 31.1.2023, down from INR 4,759 in October last year, when Invesco reduced the company’s share value amidst a global technology market slump.

How could you forget the replacement of conventional taxis? The sixth position is none other than Ola.

In May 2023, funds run by US investment corporation Vanguard reduced Ola’s valuation by 35% to $4.8 billion. According to Vanguard’s disclosures, the value of Ola’s shares held by the group’s funds decreased from $311.85 on August 31, 2022, to around $203.78 per share by 28.2.2023.

The change follows Ola’s decision to withdraw from industries including food and grocery delivery and used vehicle sales during the last year to highlight its core ride-hailing operation. It had entered several of these industries due to the Covid’s unavoidable impact on ride-hailing revenue.

If we go back a pair of years when the world was witnessing the treacherous waves of the Covid pandemic, a start-up boom took place on Indian lands. Everyone could be found talking about founders and high-fi valuations.

Seems like these over-inflated valuations contributed to a curse for Indian Start-up giants. The recent cancellation of Mamaearth IPO due to exaggerated valuations and the fall of GoMechanic due to financial irregularities are some other causes where the start-ups need to witness their faults.

Also, a mix of macroeconomic reasons, investors comparing startups to their domestic and foreign listed rivals, and other factors specific to each of the corporations has resulted in value resets. We are no longer in 2021, and entities must be evaluated founded on cash flows rather than vanity measures. It’s high time for businesses to think about the sum and content of their operations.

Conclusion.

The happening of India’s top startup stars having their valuations dropped and its aftermath will possibly influence fundraising, public offerings, and staff morale in the ecosystem because these reducing valuations will somehow result in terminations and layoffs. Let’s see how the next half of the year goes for these once-called Start-up charms!

Proofread & Published By Naveenika Chauhan