Rajan Anandan’s optimism on funding in the start-ups sector might not be misplaced. The Managing Partner at Peak XV Partners said at the Start-Up Mahakumbh on Monday that the funding winter might be over and that start-ups could see inflows of anywhere between $8-12 billion this year. After a difficult 2023, when funding into start-ups plunged 67% to $8.3 billion, approximately $1.6 billion has been invested so far in 2024.
The fact is that the exuberance of 2021 and 2022, when large sums were invested, has turned into caution, with few ventures showing signs of becoming profitable in the near future. Interestingly, much of the money this year so far has flown into early-stage companies, probably because investors believe valuations of late-stage businesses are still somewhat rich. For instance, Good Glamm has raised money via a rights issue at a flat valuation; reports suggest a fresh round of funds will be mopped up at the same valuation.
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Down rounds—where the valuation is lower than the previous one—are becoming common. Even where there is no fresh money being raised, private equity players are marking down the value of their investments. In some instances, like Byju’s, the valuations have plunged to unimaginable levels. The point that investors have been making to promoters is that they need to be focusing more on the bottom line rather than merely chasing top line growth. The message seems to have gone home and promoters are now burning a lot less cash. For instance, Swiggy, which is hoping to do an initial public offer, said last week it was merging InsanelyGood with Instamart. The operations at InsanelyGood had been cut back to just one city from six.
Also Read Chinese Perceptions of India Making farming profitable “Mission Karmayogi: A Philosophical Blueprint for Transformative Public Service” India’s agri-tech revolution is leaving women farmers behind There are lessons to be learnt from cases like Pharmeasy, which had become over-leveraged in trying to make a big acquisition and whose valuation plummeted by 90%. Fortunately, the company found a white knight, who bought into the business at a chunky discount, but not everyone might be as fortunate. The fact is the initial clutch of investors lost heavily. To be sure, many start-ups have been prudent and have rewarded shareholders both in the private and in the listed space—players like Zomato, for example, are living up to their promise. But the majority of them are still struggling to stay afloat.
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Importantly, start-ups cannot afford regulatory lapses or breaches in corporate governance. The debacle at PayTm is a good example of why businesses need to follow the rules and regulations. While the regulatory regime might be more stringent in the fintech space for understandable reasons, corporate governance issues of the kind seen at Byju’s give the sector a bad name and shake investor confidence. Start-ups being lost in a maze of regulations cannot be an excuse. Applying rules retrospectively is definitely unfair and unwarranted and there is always a case for simplifying the law and loosening controls. But why these smart minds and innovators are at sea with regulations when India Inc has been dealing with them for decades is hard to understand. Already, start-ups have been granted easier listing norms, enabling even loss-making firms to go public. Unfortunately, investors have lost serious money with some stocks, partly because the companies were in breach of the rules. If they don’t shape up, some of the estimated dry powder of close to $20 billion will remain just that.
Rajan Anandan’s optimism on funding in the start-ups sector might not be misplaced. The Managing Partner at Peak XV Partners said at the Start-Up Mahakumbh on Monday that the funding winter might be over and that start-ups could see inflows of anywhere between $8-12 billion this year. After a difficult 2023, when funding into start-ups plunged 67% to $8.3 billion, approximately $1.6 billion has been invested so far in 2024.
The fact is that the exuberance of 2021 and 2022, when large sums were invested, has turned into caution, with few ventures showing signs of becoming profitable in the near future. Interestingly, much of the money this year so far has flown into early-stage companies, probably because investors believe valuations of late-stage businesses are still somewhat rich. For instance, Good Glamm has raised money via a rights issue at a flat valuation; reports suggest a fresh round of funds will be mopped up at the same valuation.
Down rounds—where the valuation is lower than the previous one—are becoming common. Even where there is no fresh money being raised, private equity players are marking down the value of their investments. In some instances, like Byju’s, the valuations have plunged to unimaginable levels. The point that investors have been making to promoters is that they need to be focusing more on the bottom line rather than merely chasing top line growth. The message seems to have gone home and promoters are now burning a lot less cash. For instance, Swiggy, which is hoping to do an initial public offer, said last week it was merging InsanelyGood with Instamart. The operations at InsanelyGood had been cut back to just one city from six.
There are lessons to be learnt from cases like Pharmeasy, which had become over-leveraged in trying to make a big acquisition and whose valuation plummeted by 90%. Fortunately, the company found a white knight, who bought into the business at a chunky discount, but not everyone might be as fortunate. The fact is the initial clutch of investors lost heavily. To be sure, many start-ups have been prudent and have rewarded shareholders both in the private and in the listed space—players like Zomato, for example, are living up to their promise. But the majority of them are still struggling to stay afloat.
Importantly, start-ups cannot afford regulatory lapses or breaches in corporate governance. The debacle at PayTm is a good example of why businesses need to follow the rules and regulations. While the regulatory regime might be more stringent in the fintech space for understandable reasons, corporate governance issues of the kind seen at Byju’s give the sector a bad name and shake investor confidence. Start-ups being lost in a maze of regulations cannot be an excuse. Applying rules retrospectively is definitely unfair and unwarranted and there is always a case for simplifying the law and loosening controls. But why these smart minds and innovators are at sea with regulations when India Inc has been dealing with them for decades is hard to understand. Already, start-ups have been granted easier listing norms, enabling even loss-making firms to go public. Unfortunately, investors have lost serious money with some stocks, partly because the companies were in breach of the rules. If they don’t shape up, some of the estimated dry powder of close to $20 billion will remain just that.
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Funding realities: Money won’t be a hindrance for start-ups if they don’t give governance a short shrift
10
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21.03.2024
Rajan Anandan’s optimism on funding in the start-ups sector might not be misplaced. The Managing Partner at Peak XV Partners said at the Start-Up Mahakumbh on Monday that the funding winter might be over and that start-ups could see inflows of anywhere between $8-12 billion this year. After a difficult 2023, when funding into start-ups plunged 67% to $8.3 billion, approximately $1.6 billion has been invested so far in 2024.
The fact is that the exuberance of 2021 and 2022, when large sums were invested, has turned into caution, with few ventures showing signs of becoming profitable in the near future. Interestingly, much of the money this year so far has flown into early-stage companies, probably because investors believe valuations of late-stage businesses are still somewhat rich. For instance, Good Glamm has raised money via a rights issue at a flat valuation; reports suggest a fresh round of funds will be mopped up at the same valuation.
Also ReadFacebook Co-founder’s B Capital closes $750 million Opportunities Fund II for late-stage startups
Down rounds—where the valuation is lower than the previous one—are becoming common. Even where there is no fresh money being raised, private equity players are marking down the value of their investments. In some instances, like Byju’s, the valuations have plunged to unimaginable levels. The point that investors have been making to promoters is that they need to be focusing more on the bottom line rather than merely chasing top line growth. The message seems to have gone home and promoters are now burning a lot less cash. For instance, Swiggy, which is hoping to do an initial public offer, said last week it was merging InsanelyGood with Instamart. The operations at InsanelyGood had been cut back to just one city from six.
Also Read Chinese Perceptions of........
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