Dispatch from Bangalore, finish of 2022 version •

In 2014, Prayank Swaroop made a pitch to the storied enterprise agency Accel, the place he labored as an affiliate, about future marketplaces in India.

On the time, Flipkart and Snapdeal had been the one two e-commerce startups in India that had proven a semblance of scale. Swaroop made a case that as extra Indians come on-line, alternatives will emerge in meals supply, automotive aftermarket, warehousing, highway freight, and social commerce amongst many different market areas.

Swaroop, now a accomplice on the agency, turned out to be proper. City Firm, which operates within the home assist sector, is valued at over $2 billion; Zomato and Swiggy are delivering meals to hundreds of thousands of consumers every month; Spinny and Cars24 are promoting a whole bunch of hundreds of vehicles every quarter; social commerce startup DealShare is valued at over $2 billion and Meesho simply wanting $5 billion.

A whole bunch of hundreds of thousands of Indians have come on-line previously decade and over 100 million are making on-line transactions and purchases every month. India, which has doubled its pool of unicorns to over 100 previously two years, has attracted over $75 billion in investments from tech giants Google, Meta and Amazon and enterprise funds Sequoia, Tiger International, SoftBank, Alpha Wave, Lightspeed and Accel previously 5 years.

Swaroop’s presentation from 2014. (Picture credit: Accel)

However because the native startup ecosystem closes considered one of its hardest years, it’s now observing one other query that it has lengthy been capable of brush off as benign: exits.

About half a dozen client tech Indian startups have gone public previously yr and a half and all of them are performing poorly on the native inventory exchanges. Paytm is down 60% this yr, Zomato 58%, Nykaa 56%, Coverage Bazaar 52%, and Delhivery 38%.

That is regardless of the Indian shares outperforming the S&P 500 Index and China’s CSI 300 this yr. India’s Sensex — the native inventory benchmark — stays up 3.4% this yr, in comparison with fall of 19.75% in S&P 500 and 21% in China’s CSI 300.

Because the market modified its course this yr, many Indian startups together with MobiKwik and Snapdeal have delayed their itemizing plans. Oyo, which deliberate to record in January subsequent yr, is unlikely to maneuver ahead with that plan, in accordance with two folks aware of the matter.

Flipkart, valued at $37.6 billion and majority owned by Walmart, doesn’t plan to record till a minimum of 2024, in accordance with an individual aware of the matter. Byju’s, India’s most dear startup, doesn’t plan to record in 2023 and is as a substitute transferring forward with a plan to record considered one of its subsidiaries, Aakash, subsequent yr, beforehand reported.

These trying to push forward with their plans to go public will face one other impediment: A number of world public funds together with Invesco that ardently finance the pre-IPO rounds are retreating from the Indian market after getting hammered in China and different rising markets this yr, in accordance with folks aware of the matter.

LPs have lengthy expressed issues about India not delivering exits and the early-attempts previously two years from the trade appear nothing to write down house about.

Indian enterprise funds have traditionally gotten most exits by the way in which of mergers and acquisitions. However even these exits are getting more durable to come back by.

An analyst at one of many prime enterprise funds in India stated that for a very long time VCs who backed early-stage SaaS startups at sub-$25 million valuation stood an opportunity of creating good exits. However as we’ve seen in some circumstances in current months, the exit itself values the startup at sub-$25 million, making it troublesome for SaaS buyers to show a revenue.


On a current night at a personal gathering of some dozen trade figures at a 5 star lodge in Bengaluru, many buyers had been exchanging notes concerning the offers that they had been evaluating. The companions complained that the standard of startups has dropped whilst the quantity of pitches has surged.

Two distinguished enterprise funds that run well-regarded accelerators or cohort programmes of early stage investments are struggling to seek out sufficient good candidates for his or her subsequent batches, folks aware of the matter stated.

I’ll argue that it’s not simply that the standard of startups which are rising has taken a success, it’s additionally buyers’ urge for food and psychological fashions for what they assume may go sooner or later.

Take crypto, for example. The overwhelming majority of Indian buyers had been too late to make investments within the web3 house. (You will discover only a few Indian names within the cap tables of native exchanges CoinSwitch Kuber and CoinDCX and till just lately, blockchain scaling agency Polygon, as a distinguished VC at one of many world’s largest crypto VC funds just lately pointed to me.)

Now many corporations in India that had employed a variety of crypto analysts and associates final yr are retreating from the web3 market and have requested workers to give attention to completely different sectors, in accordance with folks aware of the matter.

Fintech is one other space of concern for buyers. India’s central financial institution this yr pushed a sequence of stringent modifications to how fintechs lend to debtors. The Reserve Financial institution of India can be more and more scrutinizing who will get the license to function non-banking monetary corporations within the nation in strikes that has despatched a shockwave to buyers.

Many enterprise buyers at the moment are more and more chasing alternatives to again banks as a substitute. Accel and Quona just lately backed Shivalik Small Finance Financial institution. Many are deliberating an funding in SBM Financial institution India, one of many banks that has aggressively partnered with fintechs within the South Asian market, reported earlier this month.

Buyers’ enthusiasm within the edtech market has additionally cooled off after re-opening of faculties toppled the giants Byju’s, Unacademy and Vedantu.

Indian startups raised $24.7 billion this yr, down from $37 billion final yr, in accordance with market intelligence agency Tracxn. The funding crunch and the market dynamics prompted startups to let go of as many as 20,000 workers this yr.

Over a dozen buyers I spoke with consider that the funding crunch received’t go away till a minimum of Q3 of subsequent yr regardless of most buyers chasing India sitting on document quantities of dry powder.

As we enter the brand new yr, some buyers can be re-evaluating their convictions and lots of are satisfied that a number of down rounds for main startups are on the horizon. However many star unicorn founders are unwilling to take a haircut of their valuations, partially as a result of they consider that may drive some expertise away. PharmEasy, valued at $5.6 billion, was supplied new capital at a decrease than $3 billion valuation this yr, in accordance with two folks aware of the matter. (PharmEasy didn’t reply to a request for remark.)

“2022 began off strongly, and it appeared for some time that the Indian enterprise funding market can be topic to completely different gravitational forces than U.S. and China, which had been seeing dramatic declines, however this was to not be. The Indian market ultimately turned out to be topic to the identical macro headwinds because the U.S. and China enterprise market,” stated Sajith Pai, an investor at Blume Ventures.

Pai stated that growth-stage offers accounted for almost all of funding final yr and noticed wherever from a 40-50% drop this yr. “The decline was led primarily by progress funds pausing investments as a result of the multiples in non-public markets had been wealthy in comparison with their public friends, and the weak unit economics of the expansion stage corporations.”

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