Indian startups are deferring IPO plans, cutting investment round sizes and accepting unfavourable bridge rounds with compressed valuations as a volatile environment forced on by the Covid-19 pandemic seems set to hurt companies for at least two quarters.
Many consumer businesses may also have to rejig their business models to stay relevant, investors and founders told ET.
“Globally (and in India) investors have almost shut their doors to new tech bets, especially for any rounds higher than $30-$50 million… In emerging markets like India, we expect that prices will continue to be low for at least a year… we’d rather let the markets stabilize and winners play out,” said a top tier fund partner based in the United States. “Even up the value chain towards endowment funds and other LPs, capital conservation is the mandate,” he said.
This sentiment is trickling down to startups across late- and seed-funding stages.
For instance, SoftBank-backed insurance aggregator PolicyBazaar and ride-hailing app Ola, which planned to go public in 9-18 months, may indefinitely defer those, according to investors directly aware of the plans.
PolicyBazaar CEO Yashish Dahiya, however, told ET that the company had not made any decision yet.
To draw a parallel, Uber’s stock price has dipped 28% since February, while China’s Fanhua Insurance saw its stock dip 30% since mid-January.
India’s stock exchanges have also been down 25% since January and eight companies listed in India this year raised just $7.3 million, a five-year low, according to data compiled by Bloomberg.
In a bid to extend their cash runway, a slew of startups across sectors, including BigBasket, Capital Float, Shop101 and BankBazaar, have raised bridge funding rounds from existing investors, and multiple such conversations are under way across firms and stages, fund managers said.
“The funding market dislocation will be pervasive. In some cases, there could be small internal rounds but eventually, investors and founders will realize that a better outcome will be to find a home for some of these companies. During the dotcom crash (in 2000), the dislocation continued for multiple years,” said Ashish Sharma, CEO, InnoVen Capital India.
Hyper-local delivery player Dunzo, whose sales have spiked in the last month, has also cut its fundraising ask to $5 million to keep operations on amid the pandemic.
Over the next few months, this environment will trigger mergers, acquisitions and acquihires, investors said. “In very high burn spaces like grocery, food, ride-hailing and social where funds know that primarily it is their money that is bankrolling the firm…there it makes logical sense for competing companies in the same space to merge,” said Anand Lunia, founding Partner, India Quotient.
“Acquihire will happen maybe in a few months from now, when people figure out that things are very bad and good times are not coming back for 12 -18 months,” he said.