By M. Sriram
MUMBAI, March 22 (Reuters) – India’s economy and stock markets are booming, but its startups are not.
Investors, once eager to pump billions of dollars into promising Indian tech businesses, are now going slow and cutting smaller checks. They have been scorched by ignominious falls from grace – and valuations – for once branded young firms or market debutants of recent years such as digital payments firm Paytm. PAYMENT.NS.
Karthik Reddy, managing partner at India’s Blume Ventures, which has invested in hundreds of startups, said his firm plans to do about eight new deals this year compared with 12 last year. It will invest larger sums in companies it is confident about instead of spreading funds across more companies.
“When your existing portfolio isn’t showing gains, it’s hard to be excited to do more,” he told Reuters.
Investors looking at Indian startups are much more focused on potential profit, less enamored with technology companies and more interested in stable brick-and-mortar businesses, according to Reuters interviews with six executives at foreign and domestic investment firms as well as two CEOs at startups. .
That’s a far cry from the record $36 billion raised in 2021 or even the $24 billion in 2022. In contrast, India’s stock market .BSESN – spurred on by 8%-plus economic growth– has grown 19% since the start of last year, hitting a record high this month.
The two-thirds drop in funding last year for Indian startups was also much steeper than the 36% drop for US startups and the 42% drop for Chinese startups, CBInsights data shows.
Significantly, Blume’s next fund is either equal in size or smaller than his last one, which raised $290 million — an unusual development for a top Indian venture capital firm.
India’s 10 largest venture capital firms over the past decade have always embarked on larger funds than their last, a Reuters analysis shows.
“In this environment. I don’t think we can make big profits with more money,” said Reddy.
LUCKY IS NOT A BUSINESS MODEL
Less start-up funding can have a wider economic impact. In the last eight years, startups have generated 20-25% of India’s new jobs and 10-15% of its economic growth, Indian trade body and McKinsey said in a report this month.
Much of the blame for investors’ relative reluctance towards start-ups – described by Prime Minister Narendra Modi as the “backbone” of the country – can be placed on the sharp turns in the fortunes of Paytm, online education firm Byju and Uber rival Ola Cabs .
Paytm shares have plunged 80% since its 2021 listing. It was criticized at the time for valuing itself too high and is now in crisis after the central bank ordered its banking arm hurt by persistent non-compliance.
Byju, once the poster child for India’s startup ecosystem, was valued at $22 billion in 2022 but now values itself at around $200 million. It is at loggerheads with investors over a rights issue and can’t pay its staff.
In some cases, ratings plunged even without a major crisis. Vanguard, an investor in Ola Cabs, cut the ride-hailing company’s valuation to $1.9 billion, down 74% from 2021, though it did not give a reason.
Ashish Sharma, chief executive of Temasek-backed InnoVen Capital, which has invested $1.5 billion in Asian startups, said it is clear with hindsight that too much capital was poured into certain sectors, leading to sharp increases in valuations.
“Some companies got lucky… (but) getting lucky cannot be a business model.”
“One change is that we need to be more careful when we value high growth / high (cash) fuel businesses and assess whether the market to be valued is large enough that it can attract growth investors to raise the next round of capital,” he added
India’s Nexus Venture Partners, which manages $2 billion, is “broad-based” its bets beyond typical tech startups to capture more of the economy and because traditional sectors are less risky, according to a source with direct knowledge of the matter, which declined. to be identified
Nexus, which has backed a sportswear manufacturer and coffee chain since December, did not respond to a request for comment.
In one brighter sign, Japan’s SoftBank 9984.T is considering deploying up to $300 million in India this year, according to a source briefed on its plans.
That comes after not signing a single new check in India in two years – a sharper pullback than in other regions by tech investment.
“Most (Indian) startups were too richly valued and SoftBank could not justify those valuations,” said the source, who was not authorized to speak to the media and declined to be identified.
SoftBank, which has invested $11 billion in Indian startups between 2014 and 2021, did not respond to Reuters requests for comment.
(Reporting by M. Sriram; Editing by Aditya Kalra and Edwina Gibbs)
((Sriram.Mani@thomsonreuters.com;; Reuters Messaging: Twitter: @followthemani))
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