Zombie Unicorn: Indian startups go from feast to famine

Meesho, the Indian e-commerce rival of retail giant Amazon, more than doubled its valuation to $ 5 billion last year after market investors like SoftBank and Fidelity pumped in millions of dollars.

Their goal was to drive a boom in tech startups in India, which raised a record $ 35 billion in new funds in 2021, but then the tide turned, as concerns over corporate governance faced new uncertainties in the global market for investors.

“We have not seen such a recession in at least five to six years. It’s going to be brutal, “said Anand Lunia of Venture Capital Firm India Cotient, an investor in more than 70 startups since 2012.

“I hope to see a lot of zombie unicorns. Companies that have become unicorns but do not have a business model have stopped hiring – they are not going to die, but will become irrelevant. ”

Meesho is now trying to raise debt and reduce costs after failing to raise নতুন 1 billion in new funds, warning investors of its ন 45 million monthly cash and stiff competition, two people familiar with the talks told Reuters.

Meesho responded to a request for comment.

But its struggles awaiting many Indian startups are one of the first signs of a bleak future.

The declining stock of Indian technology is a matter of concern, but investors worried about corporate governance are increasing scrutiny while trying to do the right thing, delaying the round of funding, said two venture capital executives.

And there are concerns that valuations in India are already too high, even when startup business models are driven by discounts and have a dark outlook for revenue, they added.

This could put a brake on unprecedented growth and dampen the temptation of Indian startups.

Eight venture capital and startup executives say there are growing fears that a funding crisis will reduce valuations, leaving less cash to grow and cut jobs.

Lunia says she has told companies in which her company has invested so that they can hold enough liquid cash for at least 18 months, reducing costs and headcounts if needed.

Last week, Bharatpi, an Indian payment startup backed by Sequoia Capital, said it would revise governance practices after an internal review.

Another startup, Vedantu, which offers online tutoring courses and is backed by Tiger Global worth $ 1 billion, said the 200 layoffs this month were a “load rebalancing” move based on growth expectations.

Typically, Tiger has targeted larger Indian startups, but it has now told bankers that it will only consider deals involving those valued at less than $ 200 million to reduce risk, said two executives with direct knowledge of the subject.

Tiger did not respond to a Reuters question.

‘Prepare for the worst’

With more than 60,000 startups in India, Prime Minister Narendra Modi has marked the current decade as a “tekday”, adding that “new unicorns are coming every few weeks.”

However, April was the first month in more than a year where there were no new “unicorns” in India, a term for startups with over $ 1 billion in valuations.

Indian startups raised $ 5.8 billion in March and April, about 15% less than the same period last year, according to Venture Intelligence data.

At a recent private dinner in the southern technology city of Bangalore, executives at US-based Insight Partner, which manages more than 90 billion in assets, told Indian founders that it would target more early-stage companies and invest less because of the global technological path. Says.

Insight did not respond to a request for comment

Many technology companies around the world have suffered in recent weeks due to the conflict in Ukraine and rising interest rates hurting investor sentiment.

Japan’s SoftBank, India’s largest technology investor with more than 14 billion in investments, reported a record loss of $ 26.2 billion on its Vision Fund investment arm.

Softbank-backed payment app brings first frustration to India in November with tech IPO It crashed 27% at launch, sparking criticism that it overvalued the company by not prioritizing profitability.

Paytm has dropped another 62% since. And the Indian food provider Jomato And while beauty retailer Nykaa was on the blockbuster list, their shares fell from their top 67% and 43%, respectively.

Three Indian startup founders say their investors recently told them the days of easy money are over and they now need to show a clear path to profitability.

The message, one of the founders said, is clear: “Prepare for the worst, hope for the best.”

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