Venture Capital firm admits overpricing startups, calls for realignment of expectations

Earlier at the Conclave, Zerodha co-founder and CEO Nithin Kamath and PhonePe co-founder and CEO Sameer Nigam agreed that the total addressable market size for startups could be only around 100 million.

Abhay Pandey, General Partner at A91 Partners, which is a venture capital firm. admitted that they have priced startups wrongly and valuation of many startups should be lower than what is being touted.

The investor in some of the high-growth technology companies like Digit said Indian companies and the market are different and thus venture capital firms emulating those in the US will not work here.

“The best Indian companies in the private markets — because you're playing in certain niches, certain verticals — will be valued between $5-10 billion in the medium term. We may have priced some companies that are already at much higher numbers and we are wrong. The real valuations of those companies are much lower,” he said speaking at Moneycontrol Startup Conclave in Bengaluru on July 7.

Flipkart, Byju’s, Paytm, PhonePe, and Swiggy are some of the startups that have been valued at higher than $10 billion when they last raised money from private investors. Pandey did not mention these names.

“I think the problem we've had is too much capital coming into India more than we deserve. And that puts pressure on venture capital firms because you have to put more and more money into the same company, then the founders can demand higher valuations. Once the high valuations come to the founders, they have to justify an artificially higher market,” Pandey said.

Earlier at the Conclave, Zerodha co-founder and CEO Nithin Kamath and PhonePe co-founder and CEO Sameer Nigam agreed that the total addressable market size for startups could be only around 100 million. They also believe that investors and founders may have overestimated the potential size of the market.

Pandey also agreed that founders and VCs inflated the markets in their minds. He advised VCs to put in relatively less money than “hundreds of millions” they have in the past, which will make startups more agile and creative as they will have to do more with less money.

Also read: Founders who cross the line on governance should face jail time: Mohit Bhatnagar of Peak XV Partners

“We (VCs) got carried away a little bit, but now everybody can focus on helping companies, show them the right direction, reset our expectations a bit lower, and then it's all good,” Pandey said.

Mohit Bhatnagar, Managing Director of Peak XV Partners, which was formerly Sequoia Capital India & SEA, said that startup founders are getting mature, and those going to list now will not repeat “rookie mistakes”.

“I feel like this is a maturity of our entire founder ecosystem and all of us as investors will. This next wave of companies that go public will be standing on the shoulders of everything that happened before them,” said Bhatnagar, adding that thus they will avoid mistakes of those in the past.

Bhatnagar was answering a question on valuations of startups and crashes in prices, especially after they are listed.