Zombie Unicorn: Indian Startups From Feast to Famine

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Mumbai — India’s e-commerce rival of retail giant Amazon, Meesho, has more than doubled to $ 5 billion last year after marquee investors such as SoftBank and Fidelity invested hundreds of millions of dollars.

They aimed to ride the boom of Indian tech start-ups that raised a record $ 35 billion in new funding in 2021, but are facing new uncertainties in the global market. The flow has changed since the concerns of corporate governance for the house are so imminent.

“We haven’t seen such a slowdown for at least five to six years. Anand Lunia, a venture capital firm that has invested in more than 70 startups since 2012, said:

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“I think you’ll see a lot of zombie unicorns. Companies that have become unicorns but don’t have a business model have stopped hiring. They won’t die, but they’ll be irrelevant.”

Two people familiar with the talks told Reuters that Misho is now trying to increase debt and cut costs after a failed $ 1 billion new funding effort.

Meesho did not respond to the request for comment.

But that struggle is one of the first signs of a painful future awaiting many Indian startups.

Investors worried about the plunge in tech stocks in India, but surprised by concerns about corporate governance, are stepping up scrutiny during their due diligence efforts, and two venture capital firms say the funding round is delayed. The executive said.

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They added that even if the startup’s business model is driven by discounts and the earnings outlook is bleak, there are concerns that India’s reputation is already too high.

It could put a brake on unprecedented growth and make Indian start-ups less attractive.

Eight venture capital and startup executives said tight funding has downgraded and raised concerns about reducing cash to achieve growth and reduce headcount.

Lunia said he told the companies he invested in to secure enough liquid cash for at least 18 months and reduce spending and staffing as needed.

Just last week, Sequoia Capital-backed Indian payments startup BharatPe said it would overhaul governance practices following an internal review.

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Another startup, Vedantu, which offers an online tutoring course and is backed by Tiger Global with a $ 1 billion valuation, has fired 200 staff this month in a “load rebalancing” move based on growth expectations. ..

Tiger typically targets larger Indian start-ups, but tells banks to consider only transactions targeting start-ups with a valuation of less than $ 200 million to mitigate risk. increase.

Tiger did not respond to inquiries from Reuters.

“Prepare for the worst”

Prime Minister Narendra Modi has more than 60,000 start-ups in India, naming the current decade “technology” and adding that “new unicorns will appear every few weeks.”

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However, April was the first month of more than a year when there was no new “unicorn” in India. This is the term for start-ups with valuations over $ 1 billion.

Indian start-ups raised $ 5.8 billion in March and April, down about 15% year-on-year, according to Venture Intelligence data.

At a recent private dinner in a high-tech city in the south of Bangalore, U.S.-based Insight Partners executives who manage more than $ 90 billion in assets have given Indian founders an earlier stage company. He said he would target and reduce investment for global tech. One of the people who attended said.

Insight did not respond to the request for comment.

Many tech companies around the world have suffered in recent weeks as the conflict in Ukraine and rising interest rates have hit investor sentiment.

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Japan’s Softbank, India’s largest technology investor and investing more than $ 14 billion, has reported a record loss of $ 26.2 billion in the investment sector of the Vision Fund.

India caused the first disappointment for a tech IPO in November when Softbank-backed payment app Paytm crashed 27% on its debut, causing criticism that it overestimated the company without prioritizing profitability. rice field.

Since then, Paytm has plummeted another 62%. In addition, Indian food delivery company Zomato and beauty retailer Nykaa have listed blockbuster products, but their shares have fallen 67% and 43% from their peak, respectively.

Three Indian startup founders have said investors have recently said that the era of simple money is over and must show a clear path to profitability.

According to one of the founders, the message is clear. “I wish you the best, in case of the worst.”

(Report by M. Sriram in Mumbai, additional report by Abhirup Roy, edited by Aditya Kalra and Clarence Fernandez)