Investors focused on India are taking far longer times to collect and analyse the information provided by startups, stretching the due diligence process to about six months before arriving at a pricing for the funding round.
In 2021 and the first half of 2022, when funding deals were being clocked in hordes, term sheets were being signed after even 3-4 weeks of due diligence, which jacked up valuations of Indian startups to unreasonable levels, said experts DealStreetAsia spoke to.
That probably explains the drastic drop in the number of deals in the country this year, compared with the last two years. “What happened in 2021 and 2022 [in terms of valuation] was insane, there’s no other way to put it,” said Ben Mathias, managing partner at Vertex Ventures Southeast Asia & India.
“While there is capital available, investors are now more disciplined about how they deploy it. It’s going to be very unusual to see a company raise capital at, let’s say, 30 times revenue. There may be a few exceptions here and there but, by and large, that won’t happen,” said Mathias.
According to data from Venture Intelligence, 227 deals were clocked in India so far this year compared with 540 transactions in the January-April period of 2022. In terms of value, investors pumped in a mere $9.8 billion so far this year, a huge drop from the whopping $22.3 billion scored in the year-ago period.
This is even as PE-VC firms raised $2.2 billion across 12 funds in Jan-March 2023—this includes either first, second or final closes announced by investors.
“Funds are taking more time for due diligence, and client referencing calls as they try to set the pricing for a round,” said Pratip Mazumdar, co-founder & partner at sector-agnostic technology-focused fund Inflexor Ventures. “Investors are cautious since multiples of late/large scale companies have fallen, creating a challenging situation with respect to next round valuation/dilution…,” added Mazumdar.
Moreover, with multiple funds stitching together the funding round of a company, deal-closing timelines are getting even longer.
Of the top deals signed this year, Temasek invested $2 billion in India’s leading hospital chain Manipal Health Enterprises, while buyout firms ADIA and GIC, among others, pumped in $700 million in renewable energy company Greenko Group.
Roads platform Cube Highways Trust, eyewear retailer Lenskart and NBFC DMI Finance also raised funding of $400 million and upwards.