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In today’s newsletter: 

• Venture Highway merges with General Catalyst in India
• 25 startups drop out of Hurun Unicorn Index 
• 28% GST deals real money gaming a bad hand

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The Indian startup scene just got a major shot in the arm!

• This marks a significant development, being the first major VC merger, between India and the US, in over 16 years

In a landmark deal, Indian early-stage investor Venture Highway is merging with US-based venture capital giant General Catalyst. 

• General Catalyst is committing a whopping $500 million to $1 billion to back Indian startups

Venture Highway, while retaining its leadership team of Neeraj Arora and Priya Mohan, will be rebranded as General Catalyst India.

• While Venture Highway's third fund is largely deployed, all new investments will be made using General Catalyst's capital

General Catalyst, which backs Cred, Uni, Spinny, Orange Health, FarMart, and Loop Health in India, will also make follow-on investments for Venture Highway's portfolio companies (including Meesho, Cred, MPL, ShareChat and others).

The merger follows significant departures from both firms: 

• Anand Chandrasekaran, who oversaw India investments at General Catalyst, quit in April

• Samir Sood, founder of Venture Highway, stepped down in October 2023

It's been 16 years since the last major merger between two VC firms. 

• Sequoia acquired WestBridge in 2006, but they eventually split in 2011

• Accel acquired Erasmic in 2008

Dig deeper

Koo, Gaana, Dunzo, Bizongo, and Rapido, once prominent Indian startups, have fallen out of the unicorn race, according to the Hurun India Future Unicorn Index 2024.

A record 25 startups were dropped from Hurun's upcoming 2024 unicorns list, reflecting the impact of the funding winter and valuation cuts.

• However, there were also bright spots: three new unicorns emerged – Zepto, Porter, and InCred
  
  
• Online travel aggregator Ixigo saw the biggest valuation increase after opting for an IPO

Also read: We were doubted and written off but never gave up belief in ourselves: Ixigo's Aloke Bajpai

Peak XV Partners (formerly Sequoia Capital India) emerged as the top investor with the highest number of upcoming unicorns. 

• It has invested in 47 potential unicorns, including Turtlemint, CleverTap, and Classplus
  
  
• Accel came in second with 25 such investments, and Tiger Global Management ranked third with 21

Former General Catalyst partner Anand Chandrasekaran maintained his position as the top angel investor for the third consecutive year.He has 20 potential unicorns in his portfolio.

• Other major angel investors on the list include Kunal Bahl and Kunal Shah.

Go deeper

India's 28% GST tax regime on real money games has had a devastating effect on the sector. The extent of the impact is now becoming increasingly evident.

The GST Council's 28% tax levy has impacted revenues and margins of several skill-based gaming companies in the country, which has led to significant job losses, according to a new report. 

• About four of the 12 surveyed companies have laid off up to 50% of their workforce, while four companies have stopped hiring

The increased GST levy has reduced the margins of many skill-based gaming companies. These companies are currently absorbing the costs instead of passing them on to players, fearing losing their customer base.

• As a result, GST accounted for 50% to 100% of revenues for four of the surveyed companies. It's even higher for early-stage companies, the report said

Prior to the GST amendment, GST accounted for around 15% of revenues of skill gaming companies.

Revenue growth has also stagnated and even declined in some companies since the new tax regime came into effect, the report said. 

• Only 5 out of the 12 surveyed firms have registered nominal revenue growth ranging from 0%-25%. In contrast, many companies had growth rates ranging from 100-200% prior to October 2023, when the tax regime was implemented, it said

The industry is hoping for a policy revision in the upcoming GST Council meet on June 22, the first one since the new GST regime was introduced last year. 

However, the wait might get longer, since the issue is unlikely to be discussed in the meeting, people familiar with the matter told us. 

• A potential silver lining for the sector is that the Council is likely to consider an amendment that could quash retrospective tax demands. 

P.S.: Check out our panel discussion on the impact of retrospective taxation and what can companies expect from the GST Council meeting.

Imagine a world where every customer support or query conversation is handled by human-sounding bots in any language you choose. This vision is not far off and could become a reality within the next four to five years. 

• Several Indian startups are capitalising on the rising demand for voice-based conversational AI, developing groundbreaking voice-driven AI technologies

• These innovations have attracted significant investor interest, though challenges such as data collection and implementation costs remain 

Find out more

• Ilya Sutskever, the co-founder and former chief scientist at OpenAI, has co-founded a new artificial intelligence company called Safe Superintelligence (SSI).
  
  
• SoftBank Group will ramp up its power generation business primarily in the US to supply power to generative AI projects worldwide, founder Masayoshi Son said.

Imagine a future where machines are astonishingly intelligent, but have wildly different goals than us. 

• That's the tightrope walk of AI development explored in Brian Christian's The Alignment Problem. 

This book isn't a dystopian nightmare, but a call to action. Christian dives into the ethical minefield of AI, showing how to build machines that benefit humanity, not replace it. 

Check it out

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