SUMMARY
In three years, India will have 40 to 60 VC funded tech companies in India will be sustainably profitable: Bikhchandani
Not all doom and gloom, says ace investor Sanjeev Bikhchandani
Funding fell 82% YoY to $3 Bn during Q3 CY22 from $17.1 Bn during the same period last year: Inc42
Ace investor Sanjeev Bikhchandani has said that 40 to 60 venture capital (VC) funded new-age tech startups would be sustainably profitable in the next three years.
“Sitting with Ravi Mehta (of Steadview Capital) crystal ball gazing. We concluded that in three years between 40 to 60 VC funded tech companies in India will be sustainably profitable. So it isn’t all gloom and doom”, tweeted Bikhchandani.
He also said that his debate with VC firm Steadview Capital’s managing director Mehta also helped him chart out several plausible candidate companies for the list.
Bikhchandani’s comments come at a time when new-age tech stocks are being pummeled amidst negative market sentiment and larger economic uncertainty. A case in point has been Info Edge’s two portfolio startups – Zomato and Policybazaar – that have borne a majority of the brunt of the adverse market conditions.
The Zomato, Policybazaar Profitability Puzzle
While Zomato stocks have been on an upswing in the last five trading sessions, the share prices of the foodtech giant have wiped off more than 63% of investor wealth from an all-time high of INR 169.10 in November last year.
The erosion of share prices have largely been attributed to a long path to profitability and ever increasing cash burn. Complicating matters for the Gurugram-based startup has been quick commerce startup Blinkit, whose acquisition at the outset, led to massive selloff in Zomato shares.
The acquisition further pushed the prospective deadline for Zomato’s consolidated operations to turn profitable. The foodtech startup has previously said that it will achieve overall business adjusted EBITDA breakeven between the fourth quarter (Q4) of the current financial year (FY23) and Q2 FY24.
Despite the headwinds, the Deepinder Goyal-led startup reported narrowing of its consolidated loss to INR 186 Cr in Q1 FY23, compared to INR 360 Cr during the same period last year.
On the other hand, Policybazaar too has been engulfed by rising expenses as the losses have increased manifold over the past few years. For Q1 FY23, Policybazaar’s consolidated net loss grew 84% YoY to INR 204.33 Cr, from INR 110.84 Cr in the quarter ending June 2021.
In the recent earnings call, Policybazaar chief executive officer (CEO) Yashish Dahiya said that the startup was aiming for profitability in the next three to four years, provided it is able to break even at the end of the current fiscal year’s fourth quarter.
With losses witnessing a major spurt, Policybazaar appears to be on a slippery slope and with no clear path to profitability, the markets have not been too kind to the startup.
Its shares were last trading at INR 472.35 on Friday (September 30), hovering close to its all-time low of INR 455 which it saw in July this year. The current numbers are a far cry from its all-time high of INR 1,470 which it clinched in November last year. In total, the slump has seen the erosion of 67% of the startup’s total market valuation in the last 11 months.
The Laggards?
Profitability has been the missing element from the Indian startup ecosystem. While startups have raised hefty funding rounds in the past, these new-age tech startups have failed to demonstrate a clear path to profitability.
Walmart-backed Flipkart, which is one of the biggest names in the Indian startup world, still appears far from profit. Flipkart India’s revenue grew 25% YoY to INR 42,941 Cr in FY21 while losses narrowed to INR 2,445 Cr in the same period.
India’s most valued startup BYJU’S also appears to be walking on shaky ground when it comes to generating profit. After much ado and under fire from critics, the startup finally released its much delayed financial results for FY21 earlier last month.
Add to that, many also come out in the aftermath of results slamming the edtech giant for questionable accounting practices and lack of profitability.
Foodtech giant Swiggy, earlier this year, turned decacorn after a $700 Mn fundraise with a mammoth valuation of $10.7 Bn. Interestingly, the Bengaluru-based startup still has struggled to achieve profit, albeit it did narrow its consolidated loss by 58.7% YoY to INR 1,616.9 Cr in FY21.
Listed fintech major Paytm also appears to have been hit badly amidst the current volatile market. From a record high of INR 1,961.05 in November last year, the ensuing market correction has seen Paytm’s stock prices plummet by 67%.
While it claims to be on path to achieve operational profitability ((EBITDA before ESOP cost) by the end of September 2023, the fintech major last saw its consolidated loss widen by 69% on a yearly basis to INR 645.4 Cr in Q1 FY23.
An Inc42 analysis had pointed out that just one out of four startups in the country had a positive operating margin at the end of FY20, pointing to the overall rot in the system.
The Funding Winter Chill
Home to 107 unicorns, the Indian startup ecosystem has lately been hit with funding winter that has sent many startups off the cliff. While logistics player Rivigo was forced to sell off its B2B express business to Mahindra in a fire sale after failing to raise funds, other players have cut corners, shelved expansion plans and fired staff just to conserve capital.
By all accounts, it appears that the funding winter has set in. An Inc42 analysis found that Indian startups raised a mere $3 Bn during Q3 of calendar year 2022 (CY22), a drop of 82% from a historic $17.1 Bn during the same period last year.
The funding has plummeted to 2020 levels while the average ticket size has dropped 54% YoY to hover around the $11 Mn mark during the quarter ended September 2022.
Inc42 also found that as many as 10 startups are in danger of being ousted from the much coveted unicorn club owing to the current fluctuations in the dollar-rupee exchange rate. These include names such as Spinny, PhysicsWallah (PW), Oxyzo, Mamaearth, Tata 1mg, Globalbees, among others.
Bikhchandani’s words come at a time when startups are finding it even difficult to sustain operations, but, what has raised eyebrows is the fact that, despite all efforts at shoring up profitability, only 40-60 startups would still turn profitable in a country with 107 unicorns currently.
