Reports that Meesho, Zepto, and Navi are in the midst of big fund-raises have prompted many in the start-up world to say the funding winter is finally coming to an end. The investors are yet to sign off on the term sheets but even if the three are able mop up $700-800 million between them, it would be something to cheer about.
In 2023, investments by private equity firms slumped to about $8 billion, a fifth of the levels seen in 2021. Moreover, even in the March quarter, the quantum of investment at $1.6 billion was 40% smaller than in the comparable quarter of 2023. Worse, a study by Bain & Company and Indian Venture and Alternate Capital Association noted that 35,000 ventures were shuttered during the year.
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Against this gloomy backdrop, some chunky deals would be a sign investors haven’t altogether given up on start-ups. However, it is at best a signal of a thaw.
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To be sure, as Info Edge founder Sanjeev Bikhchandani recently observed, there will always be money to back a sound business. But the days of too much money chasing too few deals and driving up valuations to stratospheric levels seem to be over.
The abundance of liquidity in the global market — the result of monetary easing by the US Fed — had created an environment in which money was backing even half-baked ideas. The days of closing out a deal over the weekend are over and the timelines for sealing a transaction can now stretch to as long as six months.
Promoters are no longer juggling investors, they’re chasing them. That’s evident from the fall in the number of deals which were down a sharp 56% in 2023 over 2021.
Indeed, private equity and venture capital players are a chastened lot and have realised there’s no point backing every horse on the course. In fact, they’re becoming cautious even when it comes to top-class businesses as seen in the increasing number of down rounds — 2023 saw just two unicorns.
Moreover, they are also marking down the valuations of their investee companies. In Q1, investments in late-stage rounds were down 47% while early-stage rounds saw a 28% increase. It’s not as though investors are short of money. Rajan Anandan of Sequoia recently indicated that an estimated $20 billion is waiting to be put to work.
It’s just that PEs and VCs are no longer in a tearing hurry, they are writing cheques but after doing a lot more due diligence than they were doing earlier. The fact is that while there have been many success stories — Zomato, Honasa, Nykaa, Delhivery — there have also been some terrible casualties like a Byju’s or a PayTm.
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The good news is that valuations are correcting so we could expect a flurry of deals in the next few months. For their part, promoters need to temper their expectations. Many of those who are unable to raise money at their current valuations are instead opting for loans to run the business, but leveraging the business can turn out to be risky.
Instead, they must rein in costs, lower the cash burn, and improve profitability as many are doing by closing down unviable operations and letting go of employees — last year, 35,000 people lost their jobs. What should give investors confidence is the strong pick-up in the e-commerce space. This would encourage them to take more bets.
Reports that Meesho, Zepto, and Navi are in the midst of big fund-raises have prompted many in the start-up world to say the funding winter is finally coming to an end. The investors are yet to sign off on the term sheets but even if the three are able mop up $700-800 million between them, it would be something to cheer about.
In 2023, investments by private equity firms slumped to about $8 billion, a fifth of the levels seen in 2021. Moreover, even in the March quarter, the quantum of investment at $1.6 billion was 40% smaller than in the comparable quarter of 2023. Worse, a study by Bain & Company and Indian Venture and Alternate Capital Association noted that 35,000 ventures were shuttered during the year.
Against this gloomy backdrop, some chunky deals would be a sign investors haven’t altogether given up on start-ups. However, it is at best a signal of a thaw.
To be sure, as Info Edge founder Sanjeev Bikhchandani recently observed, there will always be money to back a sound business. But the days of too much money chasing too few deals and driving up valuations to stratospheric levels seem to be over.
The abundance of liquidity in the global market — the result of monetary easing by the US Fed — had created an environment in which money was backing even half-baked ideas. The days of closing out a deal over the weekend are over and the timelines for sealing a transaction can now stretch to as long as six months.
Promoters are no longer juggling investors, they’re chasing them. That’s evident from the fall in the number of deals which were down a sharp 56% in 2023 over 2021.
Indeed, private equity and venture capital players are a chastened lot and have realised there’s no point backing every horse on the course. In fact, they’re becoming cautious even when it comes to top-class businesses as seen in the increasing number of down rounds — 2023 saw just two unicorns.
Moreover, they are also marking down the valuations of their investee companies. In Q1, investments in late-stage rounds were down 47% while early-stage rounds saw a 28% increase. It’s not as though investors are short of money. Rajan Anandan of Sequoia recently indicated that an estimated $20 billion is waiting to be put to work.
It’s just that PEs and VCs are no longer in a tearing hurry, they are writing cheques but after doing a lot more due diligence than they were doing earlier. The fact is that while there have been many success stories — Zomato, Honasa, Nykaa, Delhivery — there have also been some terrible casualties like a Byju’s or a PayTm.
The good news is that valuations are correcting so we could expect a flurry of deals in the next few months. For their part, promoters need to temper their expectations. Many of those who are unable to raise money at their current valuations are instead opting for loans to run the business, but leveraging the business can turn out to be risky.
Instead, they must rein in costs, lower the cash burn, and improve profitability as many are doing by closing down unviable operations and letting go of employees — last year, 35,000 people lost their jobs. What should give investors confidence is the strong pick-up in the e-commerce space. This would encourage them to take more bets.
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