Down rounds continue as VCs worry about exit opportunities, claims report

Venture capital (VC) investors are holding back from making investments in late-stage start-ups as they are concerned about valuations and lack of exit opportunities, claims a report by KPMG. The report noted that Series D and higher levels of deals have been hit the most. 
 
Business Today reported earlier how valuations of many notable Indian start-ups, ranging from BYJU’S to OYO have dropped by almost 50 per cent after the funding boom of 2021.
 
Edtech major BYJU’S, which was hailed for achieving a valuation of $22 billion in 2022, saw its valuation slashed to $5.1 million by US-based Prosus. Other names that have joined the mark-down party include hotel-room booking platform OYO, ride-hailing service Ola Cabs, food delivery app Swiggy, medtech start-up PharmEasy and fintech services provider Pine Labs, among others. 
 
Besides valuation mark downs, several start-ups such as boAt, PharmEasy, Snapdeal also deferred their initial public offering (IPO) plans citing market conditions. The KPMG report threw light on this trend and revealed that the IPO market continues to remain in the mute mode. 
 
“Given the growing number of companies looking to IPO once the window reopens, some have turned their attention to improving their attractiveness to the market in advance — improving their operational efficiencies, reducing unnecessary head count and other costs, and improving their financial metrics and profitability,” the report noted.
 
Within the Indian investment context, funding has been subdued during the first two quarters of calendar year 2023. The largest funding rounds have been raised by edtech giant BYJU’S ($600 million) and eyewear retailer Lenskart ($168 million) till now. This trend, however, might change in the coming times.  
 
“While the last two quarters have been muted, we expect activity to be significantly higher by the end of this calendar year. The path to profitability and positive operating cash flow continues to be a critical success factor for the business owners to attract funding,” says Nitin Poddar, Partner, and National Leader of Private Equity at KPMG India. 
 
Despite the decline in funding deals, gaming, edtech, agritech and fintech sectors continue to attract greater investor interest, the report highlighted.

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