Funding winter. Late-stage startup valuations slashed by 40%

As the funding winter continues for over six months, late-stage tech companies are seeing their valuations drop by almost 40 per cent. Experts say the impact is higher on consumer tech companies as compared to B2B players, because of the high customer acquisition costs in B2C and no clear path to profitability.

Major hit

“Consumer companies have fallen off the cliff, no consumer tech company is investing in growth and it has impacted their operational revenue as well. Startup valuations, especially the late stage, are down by 40 per cent across the board. The current slowdown is not like the 2008 crash: it is more like the dot-com bust because tech valuations have taken a major hit,” said Madhu Shalini Iyer, Partner at Rocketship.vc. 

Lay offs

Adding to this, Umakanta Panigrahi, MD, Valuation Advisory Services, Kroll told businessline, “We are in fact seeing mark down in late stage company valuations, anywhere between 20 to 40 per cent. Tech companies have been impacted more as compared to others. For example, we have seen high markdowns in edtech. That’s why you see companies laying off employees to improve the profitability and retain their valuations.” 

‘Risk in B2C firms’

He added that B2B is impacted much lesser than B2C, both in terms of valuations and operational parameters, like revenue and profitability. Talking about why the valuations of B2C companies have taken a hit, Panigrahi said, “Investors see funding risk in B2C companies because consumer tech companies have to constantly spend money on customer acquisition which makes it very difficult to get revenue. This is no more a selling point to investors and thus the drop in valuations.”

On the other hand, in the case of B2B companies, customer acquisition costs are much lesser than in the B2C sector, hence in terms of valuation, there is not much impact on B2B companies. 

The funding

Indian startups raised $3 billion cumulative funding in Q3 2022 (July-September), a 57 per cent drop from the previous quarter and 80 per cent lower than the $14.9 billion funding raised in Q3 2021, according to ‘Tracxn Geo Quarterly Report: India Tech Q3 2022’.  

Commenting on the future outlook, Panigrahi estimates that the worst is behind us, and he does not expect the startup valuations to fall down further. “Even if there will be minor markdown in valuations, it will not be anywhere close to what we have seen in the last six to nine months,” he added.

COMMENT NOW