As central banks worldwide raised interest rates to counter inflation, money became more expensive, and the cost of borrowing reached all-time highs. As funds became more expensive, many startup companies faced valuation cuts in the past year.
Warren Buffett likes to say that “Only when the tide goes out do you discover who’s been swimming naked.” The funding winter for startups – an extended period of reduced funding capital – has tested these companies’ operations, and their ability to build a successful business. According to ICICI Direct, Indian startups in the year 2021 received a total funding of $38 billion. The funding dried up in 2023, and startups received only $11.3 billion.
Recently, Go Digit General Insurance, an insurance firm backed by Virat Kohli, debuted on the exchanges at a 5.2% premium over its issue price. However, the IPO with a valuation of $3.5 billion, is at a 25% discount compared to its previous round, when it raised $54.5 million at a $4 billion valuation. At a pre-IPO media briefing in Mumbai, Digit chairman Kamesh Goyal said that the price band was based on assessments by investment bankers, adding that the company was leaving value on the table for public investors. Since its listing, the company's valuation has risen by 24.4% and now stands at $3.5 billion.
In this week’s Chart of the Week, we examine Indian startups that took valuation cuts over the past year in comparison to their peak valuation. Many of these companies raised funds at discounted valuations, known as down rounds. However, some companies like Ola and Gupshup did not raise any funds but rather have been marked down by their investors. For instance, Fidelity, which acquired a stake in chatbot company Gupshup in August 2021 for about $16 million, has marked down its fair value as of June 2023 to a little over $8 million.
Byju’s valuation declines by 99% from its peak valuation of $22 billion in 2021
In June of 2021, Edtech firm Byju’s became India’s most valuable startup with a valuation of $22 billion. The company saw breakneck growth during the pandemic, driven by its digital-first approach. During this period, it also acquired test prep company Aakash Educational Services for $940 million.
However, the good times did not last long as students shifted to offline classes as soon as pandemic-related restrictions cooled off. The company started to lose on most of its online business. In January this year, over the protests of key investors, it raised $200 million via rights issue at a valuation of $225 million saying that “Capital is essential to prevent any further value impairment.”
Just yesterday, Prosus marked down its investment in Byju’s to zero, having held a 9.6% stake before the rights issue. Blackrock also devalued its investment in the company. This came after Byju’s announced plans to raise funds via a second rights issue, further diluting current shareholders' stakes.
Once IPO-bound, Ola, OYO and Pharmeasy are now valued at a discount of around 70%
Bhavish Aggarwal led mobility company Ola raised its last round of $139 million back in December 2021 at a valuation of $7.3 billion. However, in February this year, Vanguard adjusted its investment in Ola’s parent company ANI Technologies downward, to a valuation of $2 billion. This represented the third instance of markdown in the valuation of the firm in the past year.
Recently, Ola Electric, which is a wholly-owned subsidiary of Ola’s parent company ANI Technologies, got SEBI approval to raise Rs 5,550 crore. This issue will comprise a fresh issue and offer for sale of 9.5 crore shares. Proceeds from the fresh issue will help the company repay its debt and expand its EV portfolio.
Meanwhile, budget hotel company OYO shelves its IPO dreams for the second time. The company had initially filed paperwork with SEBI in 2021 for a public listing, at a valuation of $12 billion, but withdrew it and refiled in 2023. The company withdrew its IPO application and now plans to raise private funds for global expansion through the issuance of preference shares at a valuation of $2.5 billion.
Similarly, online pharmacy retailer Pharmeasy also raised $216 million at a valuation of $700 million, which is significantly lower compared to its peak valuation of $5.6 billion. The company needed funds to pay off its debt taken during the acquisition of Thyrocare Technologies.
Meesho, Sharechat, and Udaan raise down rounds to sustain operations
Gupshup, a startup that builds chatbots for customer engagement. It turned unicorn after raising $100 million from Tiger Global in April 2021. The firm also raised $240 million in the same year at a valuation of $1.4 billion and acquired Knowlarity, Active.Ai and Onedirect. However, in July 2023, Fidelity Investments, a major backer of Gupshup, marked down its investments from $16 million to $8 million, valuing the company at $700 million.
Similarly, Meesho, an online shopping platform, raised $275 million last month at a valuation of $3.9 billion. The company took a valuation cut of around 20% from its peak valuation of $4.9 billion in September 2021. The company has raised around $1.4 billion over 11 financing rounds. Even ShareChat, a vernacular social media firm, raised $49 million in a down round at a 60% discounted valuation of $2 billion.
B2B e-commerce company Udaan made it to the list of firms that took steep valuation cuts during this funding winter. This Bengaluru-based startup closed a $340 million financing round at 50% discounted valuation of $1.8 billion last year in December by converting debt notes into equity. The round also included a fresh equity infusion. Started by former Flipkart executives Vaibhav Gupta, Amod Malviya and Sujeet Kumar, Udaan has been significantly scaling down operations to cut its burn amid a tightening liquidity market, while also realigning its priorities to focus on profitability
