Major events that occurred in the start-up world in March put founders and investors on alert. There was a lot of worry and uncertainty following the demise of Silicon Valley Bank, a favoured banking partner for many start-ups.  

SVB had exposure to at least 21 start-ups in India as of December 31, 2022, when it had approximately $209 billion in assets and approximately $175.4 billion in total accounts. What impact did this collapse’s repercussions have on the start-ups? Additionally, the financial winter had a negative impact.  

In this episode, Yatti Soni talks to Arun Natarajan, Founder, Venture Intelligence, and Sagar Agarwal, Co-founder & MD, Beams Fintech Fund about the current trends in the start-up world. 

Host: Yatti Soni; Producer: Nabodita Ganguly, V Nivedita, Siddharth MC

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Yatti Soni: We are back with another edition of the State of Economy podcast where we will talk about the major trends in the startup and VC ecosystem. In March, the startup world saw some major developments that left both founders and investors on edge. The collapse of Silicon Valley Bank, a preferred banking partner for many startups, caused great concern and uncertainty. On top of that, the funding winter took a toll, with several startup IPOs being postponed or reduced in size. Join us as we explore the implications of these recent developments and what they could mean for the startup ecosystem moving forward

We have with us, Arun Natrajan, the founder of Venture Intelligence, a private market intelligence company and Sagar Agarwal, Co-founder & Managing Director of Beams Fintech Fund.

Welcome, Arun and Sagar. Thank you for joining us today.

Arun, please give us an overview of the startup funding activity in the month of March as compared to last month and March 2022?

Arun Natarajan, Venture Intelligence: Sure. When we are looking at this sort of venture capital funding data. We need to look at some of these late-stage investments separately from the early-stage rounds. Put together, we have tracked about 50 investments in the month of March 23, worth about $860 million. Having said that, two large deals dominate this data: the Mega $100 million plus investments. One obviously, is the deal between LensKart and the Abu Dhabi Investment Authority. Followed by Mintifi, which raised a $110 million round led by Premji Invest. So the good news is that we are seeing an uptick month on month. In February, we just saw one $100 million deal but in March we saw two such mega deals. Overall as well, the volume of deals has gone up by 16 per cent and the value is also up by 60 per cent. However, in comparison to March 2022, it will look unfavourable, because that was still the peak funding period and funding the winter had not set in. So we are actually 62 per cent lower in terms of volume and as much as 74 per cent down in terms of value as compared to March 2022.

Yatti Soni: Can you also give some sector-specific trends, in terms of what sector did better?

Arun Natarajan, Venture Intelligence: We continue to see enterprise technology, especially SaaS startups getting more of the share of the funding pie. Overall, vertical e-commerce enterprise technologies, fintech and climate tech startups continue to get investor attention.

Yatti Soni: Given that we have spoken about equity rounds, were there also any debt rounds last month?

Arun Natarajan, Venture Intelligence: So broadly speaking, venture debt is relevant for the startup ecosystem and some of these players have been quite active. In the current environment, startups who do not want to take a down round, are looking at venture debt players to extend their runway. Given the environment, venture debt investors are also doing more scrutiny to see which companies have cash flows. Overall, my take on venture debt, is that it is increasing and it is helping at the right time. Venture debt has become a big asset class by itself in India.

Yatti Soni: Coming to you, Sagar. One of the biggest was the collapse of Silicon Valley Bank. Can you talk a bit about what was SVBs relation to Indian startups and what was the impact on the ecosystem when this collapse happened?

Sagar Agarwal, Beams Fintech Fund: I think Silicon Valley Bank was a major event in the global financial market. Thanks to Fed it did not lead to a large contagion globally. A lot of Indian startups that had branches in Delaware, or that had set up an office in Delaware to attract global capital, were keeping their capital in the Silicon Valley Bank. I think global markets were fortunate that the US government did step in and allowed the ecosystem to be saved from the collapse of Silicon Valley. Otherwise, the impact would have been substantial. I don’t have the exact number but I have heard that close to $500-$700 million of Indian startups’ money was in the bank. Also, a lot of VC funds from the US markets, which were also investing in India had a huge amount of capital kept in Silicon Valley Bank.

Yatti Soni: Arun would you like to add to this?

Arun Natarajan, Venture Intelligence: SVB collapse was a wake-up call for the global ecosystem. Companies now need to be very careful and realistic in terms of where they want to domicile, especially since enough domestic capital is available and as well as the gift city option is available. Also, companies clearly need to diversify when it comes to global banking options.

Yatti Soni: Another trend that we saw last month is the impact of funding winter on the IPO plans that startups had. We saw these reports about Mamaearth and ixigo halting their IPO plans and OYO is expected to slash the size of its proposed IPO by two-thirds. What are your reflections on this trend and do you expect more companies to halt IPO plans in the current environment?

Sagar Agarwal, Beams Fintech Fund: It is a combination of two things. One, are the markets ready for high-priced IPOs? I personally believe, given the performance of the last 16 tech IPOs in India, markets are a little jittery about loss-making companies going for IPO. Markets are asking for portfolio companies to come at reasonable valuations, and leave some money on the table for the investors and that’s when you will see a lot of acceptance for the IPO. At the same time, founders are trying to maximize their valuation while going for an IPO, they will consistently get pushback from the public market. Public markets are not like private markets where valuation can be justified in two years’ time, as long as you keep growing for the next two years.

Companies like Mamaearth, which I believe were overpriced compared to listed peers, will face pushback. A lot of IPO still happening in the offline space. If you look at the public markets, and the DRHP being filed, I don’t think there is a challenge in the market for liquidity. I think the challenge is primarily the pricing, if people continue to keep overpricing the IPOs there will be a push back and then there will be a challenge in the market.

About the State Of The Economy podcast

India’s economy has been hailed as the bright spot amid the general gloom that seems to have enveloped the rest of the world. But several of its sectors still stutter about even while others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups. Tune in!

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