As the funding winter intensifies and macroeconomic conditions worsen, private investors of multiple start-up unicorns have slashed their valuations by 30-50 per cent.

In one of the latest instances of such cuts, Swiggy’s investor Baron Capital has slashed the food delivery major’s valuation to $7.3 billion from the earlier $10.7 billion, which is a 32 per cent cut.

Similarly, Invesco has cut the food delivery major’s valuation to $5.5 billion in January 2023, from its last valuation of $10.7 billion in January 2022. 

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Further, Janus Henderson has slashed Pharmeasy’s valuation by 50 per cent to $2.8 billion from $5.6 billion.

Earlier this week, US-based Neuberger Berman slashed the valuation of API Holdings (Pharmeasy) by 22 per cent to $4.39 billion. Neuberger also slashed Pine Labs’ valuation to $3.14 billion from its last valuation of $5 billion.

Ola’s American investor Vanguard Group slashed the company’s valuation by 35 per cent to $4.8 billion, compared to its peak valuation of $7.3 billion. Prosus, too, pegged BJYU’s valuation at $6 billion in November 2022.

BYJU’s raised its last funding round at a valuation of $22 billion. In late 2022, Oyo’s valuation was also slashed to $2.7 billion from $10 billion by Japanese conglomerate, SoftBank.

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Commenting on the growing trend of valuation markdowns, Siddarth Pai, Co-Founder, 3one4 Capital, and Co-Chair, Regulatory Affairs Committee at the Indian Venture & Alternate Capital Association (IVCA) said, “Valuation is a mix of fundamentals, potential and market sentiment. Market sentiment is depressed across the world as high-interest rates have increased the cost of capital.”

Pai added, “Due to this, start-ups are going lean and concentrating on profitability, instead of growth. This optimisation has led to a reduced need for external capital. Accounting standards require investors to ascertain the fair market value of an investment on a quarterly basis.”

“Markdowns have become the norm in the absence of funding rounds to validate valuations. But markdowns due to accounting must be differentiated from markdowns due to capital raises. The former is subjective and the latter is absolute,” Pai said.

Adding to this Amit Nawka, Partner, Deals at PwC said, “The primary reason for valuation cuts for many unicorns is that are very close to an IPO and so quite comparable to publicly listed companies. Now, if the publicly listed comparable company is trading much lower then the private company’s valuation also gets slashed.”

Nawka added, “The second reason for these cuts could be that a lot of companies raised money at valuations, which they needed to grow into. Now in the current environment, if these companies are not able to grow into those valuations, new investors are reluctant to invest at the same premiums. In this conservative market, funds are not easily available. So companies would have gotten into slower growth and hence slower valuation growth.”

Future Outlook

According to Jatin Desai, Founder & Managing Partner at Inflexor Ventures, start-ups will see further valuation cuts at least till the end of 2023, particularly the start-ups which have still not grown into the excessive valuations they received from 2020 to early 2022.

“Indian start-up ecosystem has not yet marked down significant chunk of portfolios to reflect the new reality and many have been doing convertible bridge rounds so they don’t have to do a down round or do price discovery in the downturn. Few startups that were reasonably valued or have been able to justify their valuations by demonstrated good revenue growth without burning much money or even showing profitability will be less impacted than the others,” Desai added.

Further, Pearl Agarwal, Founder & Managing Director of Eximius Ventures noted that 2021 did not just see an influx of capital at higher valuations into successful companies, but also saw convoluted business models and shallower problem statements getting funded.

Due to the global buoyant environment, a lot of these didn’t face much hardship in scaling to larger rounds and valuations. However, as the ecosystem became more pragmatic owing to the global macroeconomic conditions, the lack of PMF (product market fit) that still afflicted these companies was highlighted.

“Such companies are expected to face more down rounds as they would need more runaway to navigate the global downturns. For companies that are looking to solve deeper problem statements and are showing early signs of PMF, a 35-40 per cent lower valuation decrease can be expected based on their stage and size. Valuations in certain sectors may even reduce by over 50 per cent,” Agarwal added.