Across the world, investors and venture capital firms are calling off all bets on tech-based startups who are asking for rounds higher than $30 million+. However, India continues to be a safer bet as it is still an emerging market and investment round prices are currently low. On the other hand, Indian start-ups are on the verge of backing out from IPOs as well as cutting down on investment rounds. These start-ups are now opting for comparatively unfavorable bridge rounds to compensate for the devaluation amidst a recession environment set off by the lockdown in our country.
A sudden change of plans
Many start-ups are changing their entire business strategy to rejig their revenue streams and stay relevant in the ecosystem. Among the investors, the word in the street is that there has been a huge drive for capital conservation, thus leading to the suspension of almost all imminent investment rounds, until and unless that start-up's revenue is unhindered from the lockdown impact.
SoftBank-invested Indian insurance-tech unicorn, PolicyBazar and cab aggregator Ola have delayed their plans of going public, which was scheduled to take place in the coming few months. The repercussions that will be set off after IPO, as well as the current devaluation, is being taken into consideration, thus forcing them to suspend their IPO plans for an indefinite period.
Why are they planning to defer IPOs?
To state an example of what the market situation is, Uber's stock price has dipped by 28 percent since February. China's Fanhua Insurance has also been reported to have at least 30% dip in its market share value.
Closer to home, India's stock price range has been lowered down by no less than 25 per cent since January. Eight companies listed in India collectively raised $7.3 million, slumping to a five-year low, with due credit to be given to the repercussions set off by lockdown.
To sum up the picture in simple words, conditions are not favourable for unicorn companies to go public as you are bound to lose your money with the current volatility of the stock market.
Sticking to bridge rounds of investment
A huge flurry of start-ups and unicorns, including BankBazaar, Shop 101, Big Basket and Capital Float.have planned to stick with the bridge investment. Those who were in talks with investors for proper investment rounds are now cancelling them due to the current volatility of the business market.
According to experts, these repercussions will not be over easily and will be felt across the nation for years. The dislocation of investment market is as real as it gets, and both nascent start-ups, as well as the established ones, are trying to work this out as much as possible before they run out of funds as well as their partners.
To state an example, delivery and logistics start-up Dunzo which posted impressive year-on-year sales figures, have cut down their funding to $5 million so that it continues to function well amidst the pandemic.
The current lockdown environment might set off predatory acquisitions, mergers as well as divulging into stakes. In cash burn-rich fields like essential items, ride aggregators and social platforms are trying to be careful with their expenditure as one push might lead to a complete extinction from the business. The repercussions will stay for at least a year and the companies have to chart out their plans accordingly, keeping in mind the above facts.
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