Season of down rounds gets longer for Indian startups – SME News
The season of down rounds in the startup space is getting longer. Nearly 20% of the large venture capital deals in 2023 and till April this year saw steep reduction in valuations. This is the highest since 2015, according to data sourced from Pitchbook.
Prior to 2023, the highest share of down rounds was in 2017, when 17% of the VC deals were made with valuation cuts, after the funding exuberance seen in 2015-16. Analysts say the trend is likely to continue through the year. That’s bad news for startups ranging from large unicorns to growth and early-stage.
“Down rounds may continue for some time as some of the excess valuations of 2020-21 have not cleared through, in terms of company performance catching up, and growth stage deals are still muted relative to historical levels,” said Deepak Gupta, general partner, WEH Ventures. According to Gupta, many founders had pushed their fundraising plans by a year in 2023, but they will now need to emerge for oxygen, which may lead to down rounds.
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Of the 20 venture capital deals that took place this year, primarily growth and late-stage rounds, four were made at a lower valuation. Last year, out of the 84 deals in the growth and late-stage, 17 were down rounds.
Online pharmacy retailer, PharmEasy, which recently raised $216 million, is the latest example of this. In a round led by Ranjan Pai’s Manipal Education and Medical Group and existing investors, the deal valued the company at $710 million — a haircut of around 90% against its $5.6 billion valuation in 2021. Pai’s investment office Claypond Capital and private sector lender Axis Bank are reportedly also in talks to invest in gold loan startup Rupeek. The round will likely see the valuation of the firm being cut.
B2B trade platform Udaan raised $340 million in December 2023, which was at a valuation of around $1.8 billion compared to its peak of $3.2 billion in 2021. Meesho, which is looking to raise around $300 million, may also have to settle for a valuation of $3.9 billion — 20% lower than the $4.9 billion it commanded during its previous fundraise in 2021. Byju’s rights issue earlier this year was also at a 99% lower valuation.
Indian startups saw a slowdown in funding in the first quarter of this year at $1.9 billion, compared to the $2.2 billion raised in Q4 2023. The downturn was after continuous growth seen in the three preceding quarters of 2023, as per Tracxn data.
During the January-March quarter of the current calendar year, Indian startups raised $1.9 billion in total funding, compared to $2.2 billion raised during the same period last year, as per Tracxn data. In 2023, they raised a total of $8.4 billion, which was not only much lower than $25 billion raised in 2022, but also the lowest in the last five years.
