Uber CEO's letter signals more scrutiny of investments, say experts

At a time when Uber Chief Executive Officer (CEO) Dara Khosrowshahi has in a letter to his colleagues said the company is tightening its belt because investors are questioning the firm’s profitability and cash flows, experts say this is one of the clear signs that the joy ride of some start-ups is under lens globally and in India.

They say due diligence for investment is becoming more rigorous than before.

“This was inevitable. However, all good start-ups with good businesses have capital. It is up to them to make the best use of it,” said Madhur Singhal, managing partner and CEO, Praxis Global Alliance, a global management consulting and advisory services firm.

In an interview, Praveen Neppalli Naga, vice-president and head of mobility engineering, Uber, said the firm always looked at how resources were allocated.

When asked about Khosrowshahi’s letter, Nikhil Sachdev, managing director, Insight Partners, global venture capital and private equity firm, said this was happening more among late-stage companies in public markets.

“There is more scrutiny and maybe appropriately so,” said Sachdev.

Also, SoftBank Group Corp, which has been a prolific tech investor in India and globally, reported on Thursday a record loss of $26.2 billion at its Vision Fund unit as the value of its tech portfolio reduced.

Masayoshi Son, founder and CEO of SoftBank, said this year the firm might invest only half or a quarter of what it did last year. Son’s comment signals a slowdown in large funding rounds globally and in India -- led by macroeconomic factors and the ongoing Russia-Ukraine conflict.

SoftBank’s $1.4 billion investment in Indian fintech firm Paytm currently has a fair value of around $800 million. Its investment of $100 million PB Fintech (parent firm of PolicyBazaar) has a fair value of around $400 million.

Experts say globally the valuations of high-tech companies are under stress.

To deal with this, analysts are expecting to see many founders of top start-ups and unicorns raising loans or debt and investing their own capital as part of the funding rounds. They are doing this as part of a confidence-building measure to show the founders are bullish on the business.

For instance, Byju Raveendran, founder and CEO of edtech giant Byju’s, is in talks with international and domestic banks to raise $400 million as a loan to fund 50 per cent of the $800-million funding round of the edtech giant, according to people familiar with the development.

They said this move was part of the company’s strategy to show the founder’s confidence in the firm.

Byju’s is reportedly in talks with lenders to raise over $1 billion in acquisition financing. The Bengaluru-based firm is talking to banks, including Morgan Stanley and JPMorgan Chase & Co, for the funding.

The start-up was valued at $22 billion with fundraising this year. It is working on its initial public offering plans. Analysts say several unicorns in India may focus on such initiatives. Singhal said the need for funds had directed some companies into venture debt and other similar sources.

Last year in December, Ola said it had raised $500 million via a Term Loan B (TLB) from marquee international institutional investors.