Global investors slash valuation of Indian unicorns amid funding winter

Investors are looking to mark down the valuations of top Indian tech firms in the range of 20 per cent to 50 per cent, according to analysts

Global investors are slashing down the valuations of Indian tech unicorn companies amid a funding winter and macroeconomic uncertainty. They are expected to mark down the valuations of top Indian tech firms in the range of 20 per cent to 50 per cent, especially in areas such as edtech, consumer internet and e-commerce according to analysts and industry sources.

They said that since there was an abundance of capital available after the pandemic in 2021, tech firms were able to obtain massive funding rounds and achieve high valuations. However, by the end of 2021, the markets started experiencing increased volatility and uncertainty, and investors became more cautious.

Anand Prasanna, managing partner at venture capital firm Iron Pillar said that there is now 50 per cent to 70 per cent reduction in valuation multiples compared to the valuation multiples in 2021 that the companies achieved during fund raising process.

“There is a massive correction in valuation multiples,” said Prasanna.  He said that some of the large companies have not grown. They have been surviving on the money in the bank and trying to push for profitability.

Prasanna said 2021 was the most difficult market for many investors as companies were valued more than 2x. “This entire thing about going out and raising money in every six months was crazy,” said Prasanna. “We were in an unrealistic market in 2021 and that has gone away.”

US-based asset manager BlackRock has reportedly reduced the valuation of the edtech giant Byju’s by about 50 per cent to $11.5 billion. This is a sharp decrease from the $22 billion at which the Bengaluru-based edtech decacorn was last valued in 2022, according to the filings accessed by tech-focused media platform The Arc. BlackRock has been marking down the valuation of Byju’s since June last year.

BlackRock joined Byju’s cap table at a $12-billion valuation in 2020. Its stake is under 1 per cent. In April 2022, BlackRock was valuing the shares of Byju’s at about $4,660 per unit. This translated into a company valuation of about $22 billion. However, BlackRock marked down the value of its shares in Byju’s to $2,400 per share at the end of December 2022.

Byju’s could not be reached for comment related to this development and a query to BlackRock remained unanswered.

“Due to the reduced liquidity in the markets, valuations for many tech companies have dropped significantly. Major tech unicorns have seen a decrease in their value,” said analysts from market intelligence platform  Tracxn.  “Similar declines are also being observed in publicly traded tech giants as well.

There has also been a 48 per cent decline in the number of new unicorns being minted in 2022 as compared to 2021, according to the data analysed by Tracxn. The term unicorn refers to a privately held startup company with a value of over $1 billion.

“This valuation decline is not unique to India; tech companies around the world have all experienced valuation reductions, and we anticipate this trend will continue till the next year,” said the analysts at Tracxn.

Along with Byju’s US investor Invesco has reportedly marked down its investment in food delivery giant Swiggy by 23 per cent. In January 2022, Swiggy raised $700 million in Invesco-led new funding, which made the outfit a decacorn, almost doubling its valuation to $10.7 billion.

“The valuation of Swiggy has now reduced to about $8.1 billion,” said a person familiar with the development.

Earlier this year, Swiggy laid off 380 employees from its workforce of 6,000, citing challenging macroeconomic conditions and a slowdown in growth of its food delivery business. 

Swiggy’s rival Zomato’s market capitalisation has dropped close to 40 per cent in the last 12 months. As of March 31, Zomato’s market capitalisation was about $5.2 billion.

In a recent development, Oravel Stays, the parent firm of hospitality major OYO, refiled its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) under the confidential pre-filing route. The issue size for the company’s public listing has been reduced to almost half at $400-600 billion. This is significantly lower than its first attempt which eyed a fund raise of Rs 8,430-crore ($1.2 billion) back in September of 2021, looking for a valuation of $11-12 billion.

Late last year, the valuation of hospitality and travel tech firm OYO in the private market dipped to around $ 6.5 billion following reports of a markdown of the valuation of the company by SoftBank in its private books, according to the sources. In the week ended September 30, 2022, nearly 12.3 lakh shares of the company were sold in the private market as compared to over 1.6 lakh shares sold in the previous week.

The sell-off followed reports that Oyo largest investor SoftBank has cut the valuation of the hospitality platform by 20 per cent to $ 2.7 billion in its books. Last year in December Oyo said that it will downsize 10 per cent of its workforce, laying off 600 of its 3,700-employee base, primarily in tech roles. However, the company will also conduct fresh hiring of 250 members in other roles.

“Overall the global markets are in a (difficult situation) and tech stock and fintech stocks within that are getting hammered everywhere,” said Sameer Nigam, founder and CEO of fintech unicorn PhonePe.

However, despite a funding winter and macroeconomic uncertainty, PhonePe recently raised $650 million as part of the fintech unicorn’s ongoing fundraising of up to $1 billion. It achieved a pre-money valuation of $12 billion. Nigam said it was the company’s maniacal focus on customer service that helped it retain a substantial market share in its core business and attracted the attention of the investors. “We always had a very high level of automation, which has kept our costs down and margins keep on improving and that is a good sign,” said Nigam.