Looming VC Downrounds Signal An Upcoming Reset For Indian Startups

Looming VC Downrounds Signal An Upcoming Reset For Indian Startups

SUMMARY

Indian startups ecosystem recorded 50% decline in funding amount raised in April compared to March and February

Over 80-90% of the Indian startups will witness up to 40% fall in their valuation, experts suggest

Foodtech unicorn swiggy marks 84% and 26% decline in the on-going round compared to last two rounds raised in December and June 2018

With the lockdown might have ended in many parts of India and restrictions eased in other cities, the fallout of the Covid-19 pandemic will have a prolonged impact on India’s economy. While the Centre for Monitoring Indian Economy estimates a whopping 100-120 Mn job losses due to the nationwide lockdown, International Labour Organisation in its ‘ILO Monitor: COVID-19 and the world of work’ has further estimated that with almost 90% of people working in the country’s informal economy, about 400 Mn workers are at risk of falling deeper into poverty.In April, this year, which observed a lockdown throughout the month, only $474.4 Mn was raised against $1.06 Bn in March’20 $1.1 Bn in February’20.Speaking to Inc42, Siddarth Pai, founding partner of 3One4 Capital said, “Of the 40K startups, over 25% i.e. 10K startups will have to shut down if the government does not come up with a bail package at the earliest. As exits are delayed, the VCs money will be less and tougher to get.”Speaking to Inc42, Santosh N, managing partner, D and P Advisory LLP and external advisor for Duff & Phelps, said, “Over 80-90% of the Indian startups will witness a minimum of 20-40% fall in their valuation.” “The impact will be mostly for Series B and above. Cheque sizes would also reduce due to the higher risk and uncertainty in the market at this point of time.”“We are cutting all valuations by 50%. And a flat round is the new 3X up.”“The existing investor who is convinced of the startups’ gameplan may have to support those investments. Otherwise, if it doesn’t support those investments, maybe the $20 Mn that it had made earlier might completely go away if the startup goes bankrupt. So, just to protect the cash that he has already invested, the investor may have to invest more money,” said Zephyr’s Raina“Whether it is a ride-hailing company, hospitality, logistics or an infrastructure company, there would be a serious impact on their balance sheet and cash flows.” – Santosh N.“Companies which will not be able to generate enough revenue in the social distancing era, will ultimately die in this process, while companies which emerge stronger will be recognised as the new Flipkarts of the Post-Covid-19 era,” said Santosh N.The startups which are able to align themselves with the changing consumer behaviour and changing government policies will most likely dethrone some of the existing unicorns, said Santosh.For the Indian startups, be it, the early-stage or late-stage, challenges of funding and valuations are only beginning by many estimates. The funding winter has definitely come in the scorching summer months.

As most continue to work from home and some gingerly make their way back to the office, almost every microeconomic and macroeconomic aspect of human life seems to be cosmically entangled with the Covid-19 pandemic.

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