SoftBank's funding drought worst since 2014, Tiger Global’s deal count least in 5 years

During a recent interview with Moneycontrol, Rajeev Misra, the CEO of SoftBank Investment Advisers and a trusted associate of Masayoshi Son, CEO of SoftBank, said that investors had "definitely" overestimated the market potential in India.

“India is a $3 trillion GDP market, but it had raced ahead of itself in terms of valuation. The total addressable market is not that big. There are 60-70 million people who can afford digital services… maybe a 100 million,” Misra said in the interview.

The sentiment was echoed by Nithin Kamath, the co-founder and CEO of Zerodha, India's most profitable new-age tech startup, and Sameer Nigam, the co-founder and CEO of PhonePe, India's most valued fintech company. The two participated in a panel discussion at the Moneycontrol Startup Conclave in Bengaluru on July 7, where they also agreed that the total addressable market for startups in India could be limited to about 100 million.

The perceived overestimation of India's market has focussed attention on the valuation of tech startups. Despite being the world's third-largest unicorn ecosystem with 107 of them, India has not witnessed the creation of any new unicorns (startups valued at over $1 billion) in the past 10 months.

Moneycontrol had previously reported how this dry spell is expected to continue for a few more months. Misra too said that SoftBank is currently not exploring any new investments in India, but will make a few follow-on investments.

US-based asset management companies (AMC) have also marked down the fair value of Indian technology startups like Meesho, Byju’s, Pharmeasy, Pine Labs, and Swiggy, among others.

Furthermore, unicorns sitting on massive valuations have had to raise new funds at down or flat rounds. For instance, Byju’s, India’s most-valued startup, raised $250 million in October last year at a flat valuation of $22 billion. The company is also finalising a new $700 million round at a $22 billion valuation, but is struggling to close it amid a host of issues. Online pharmacy and healthtech platform Pharmeasy, meanwhile, is seeking a Rs 2,500 crore infusion at 90 percent lower valuation.

A down round is when a privately held firm raises funds at a valuation lower than its previous round.

Misra said that more companies will have to reprice themselves when they look to raise funds.

“If they (startups) don’t (reprice themselves), they won’t get money. Founders will take some time to digest this. Everybody who was graduating was launching a startup or joining one. That has to be adjusted for reality. Regular industries would get people now, churn will come down, employee retention will go up, and the cost of a programmer will come down,” Misra said.

A sharp decline in startup investments has also brought to the fore a number of instances of corporate governance lapses. In the first six months of 2023, two startups — Mojocare and GoMechanic — backed by some of the largest global investors, have admitted to inflating revenues. More such cases could surface in future, industry observers said. As a result, VC firms have become stricter with due diligence.

But Misra and Rishi Navani of Epiq Capital, a backer of unicorns like Lenskart, Pristyn Care and Cult.fit, feel that the long-term faith of investors in the country has not been dented, as the percentage of such incidents of malfeasance is very small.