Business
As capital becomes expensive, startup funding takes a hit
When capital was free, the best performing companies were capital consumptive. As capital has gotten expensive, these have become the worst performing companies, global private equity fund, Sequoia said in a recent meet with the community of founders.
As interest rates rise, valuations of cash guzzling companies and startups are being hammered and funding is drying up globally, and in India.
VC/start-up investments in India in April 2022 declined by 50 per cent year-on-year to $1.6 billion across 82 deals, according to the IVCA-EY monthly PE/VC roundup.
Vivek Soni, Partner and National Leader Private Equity Services, EY said the US Fed has started tightening monetary policy with a 50 bps interest rate hike and business risk premium/discount rates have gone up globally, which has had a significant negative impact on valuations of listed loss-making but growth-oriented start-ups. This is expected to have a spillover effect on the private capital side as well. Both start-up valuations and deal closures could see some slowdown in the coming few months.
According to the IVCA-EY monthly PE/VC roundup, April 2022 recorded investments worth $5.5 billion across 117 deals, including 16 large deals worth $4 billion. Exits recorded $1.2 billion across 13 deals, including six open market exits worth $483 million and one buyback worth $330 million.
Soni said April 2022 recorded US$5.5 billion in PE/VC investments, 27 per cent lower than April 2021 and 11 per cent higher than March 2022. Growth investments were back at the top after nine months with more than 2x growth y-o-y while monthly start-up investments recorded a 50 per cent y-o-y decline.
“The best performing assets ‘when rate expectations were falling – including technology, biotechnology, and recent IPOs- have been the worst performing assets. Simply put, the world is reassessing how business models fare in a world where capital has a cost and reconsidering how much credit to give companies for profits many years into the future”, Sequoia said.
“We are experiencing the 3rd largest Nasdaq drawdown in 20 years. It’s been an incredibly volatile last 6 months in the tech market. While it’s not quite 2001 or 2008, the Nasdaq is down 28 per cent since last November”, it added.
Sixty one per cent of all software, internet and fintech companies are trading below pre-pandemic 2020 prices. They’ve lost more than two years of stock price appreciation That’s despite many of these companies more than doubling both revenue and profitability.
One third are trading below COVID lows, when uncertainty and fear was peaking. Even more sobering, nearly one-third of these companies not only trade below their pre-pandemic stock prices, but they are now trading below the bottoms reached during March 2020 at the height of the COVID-19 pandemic.
The market is now pricing in lower values for many stocks than in March 2020 at the time of peak uncertainty. The market bounced back quickly from those lows with the help of an unprecedented combination of monetary and fiscal policy. Now with both those tools being withdrawn and moving from tailwinds to headwinds, the market is clearly indicating that the valuation framework over the last two years is no longer relevant with the removal of free money, Sequoia said.
It added that growth at all costs is no longer being rewarded. The era of being rewarded for hypergrowth at any costs is quickly coming to an end. EV/Revenue multiples across software have been cut in half over the last 6 months and now trade below the 10-year average.
Growth-adjusted multiples have fallen even further and are well below the 10-year average and pushing the 10-year lows. With the macro uncertainty around inflation, interest rates, and war, investors are looking for companies that can produce near-term certainty. Capital is becoming more expensive while the macro is becoming less certain, leading to investors de-prioritizing and paying up less for growth, Sequoia said.
The focus is shifting to companies with profitability. The focus on near-term momentum is often shifting toward companies Who can demonstrate current profitability. While the Nasdaq is down, Morgan Stanley’s unprofitable tech index is down 64 per cent. With the cost of capital (both debt and equity) rising, the market is signaling a strong preference for companies who can generate cash today, Sequoia said.
Cheap capital is not coming to the rescue. Unlike prior periods, sources of cheap capital are not coming to save the day. Crossover hedge funds, which have been very active in private investing over the last few years and have been one of the lowest cost sources of capital, are tending to wounds in their public portfolios which have been hit hard, Sequoia said.
Many don’t even have the capacity to invest, as the drawdown in their public portfolios has created an imbalance in their hybrid funds where their private investments (which have not been as dramatically marked down) represent more than the maximum private capacity within their funds, Sequoia said.
Shivam Bajaj, Founder & CEO, Avener Capital said alarmingly for the Startup ecosystem, private equity and venture capital investments declined by 25 per cent-30 per cent M-o-M in April 2022. Additionally, glorified startups including Nykaa, Zomato and Paytm continue to erode investor wealth by trading at approximately less than 50 per cent of their listing prices. With more than 6000 employees laid off in 2022 YTD by Indian Startups, capital providers might prefer delaying their plans to deploy their dry powder in expectations of future turnarounds in the industry. However, on the upside, asset-light business models built upon the pillars of consistent revenue generation, which deliver reasonable margins to investors instead of demanding rigorous burn rates, might potentially draw investor interest.
Siddharth Mehta, Founder & CIO, Bay Capital said the easy money policy of the Federal Reserve following the Global Financial crisis and accelerated in many ways at the onset of the pandemic had led to the excess liquidity getting funnelled into financial assets with increased speculative activity in such assets such as crypto currencies and NFT’s, over the last couple of years.
“India has been an equal beneficiary of this liquidity and now with the Fed being behind the curve in addressing inflation concerns and the extraction of liquidity with increased interest rates, it is definitely going to have a knock on effect on funding for early stage and late stage businesses as well”, Mehta said.
“Our view is that incremental capital will be allocated far better; investors will become far more discerning as they should have been; funding cycles will get more drawn out and diligence will be more robust and there will be far greater focus on profitability paths of these businesses. Its also likely that in some instances there will be consolidation and unfortunately mortality as well. The price damage in the public markets has still not fully cascaded down the stage curve and will happen very rapidly now. While this will have a negative impact in the near term, it is our view that over the long term, this will have positive effects as stronger businesses with robust business models, clear paths to profitability, scale and with clear differentiation will come out to be outsized winners”, he said.
Ravindra Bandhakhavi, Partner & Head-Private Equity, Cyril Amarchand Mangaldas says, “The global economic conditions are definitely impacting the funding environment for startups. There is much more emphasis on a proper diligence and a more robust corporate governance framework. Investors are also able to negotiate better rights as companies and startups are keener to have deep pocketed investors backing them at this point. Investors lastly are much focused on a path to profitability than they were before. Overall the more successful startups will still be able to raise funding while others will suffer potentially creating greater M&A opportunities in this space as well this year.”
Business
Bharat Mobility Global Expo 2025: Toyota & Lexus Unveil Future Projects In Indian Portfolio; Images Below
New Delhi: Japanese car maker Toyota and it’s luxury arm, Lexus have showcased some of their future models from their respective India portfolios at the Bharat Mobility Global Expo 2025. Toyota’s standout concepts include the X-Van, bZ4X, and Urban EV, while Lexus has captivated audiences with the ROV Concept 2 and LF-ZC.
Toyota’s star studded lineup
Moreover, Toyota showcased some of its updated and facelifted models during the autoshow. The Japanese car maker features included the Prius Flexi-Fuel PHEV, the Hilux FCEV, and a detailed cross-section of the Innova Hycross hybrid. Additional highlights include the striking Hilux Black Edition and the Land Cruiser 300 GR Sports, adding excitement to the brand’s lineup.
Toyota X-Van (Concept)
The X-Van, envisioned as a futuristic MPV, is designed to redefine spaciousness and versatility to meet diverse customer needs. This boxy, three-row utility vehicle eliminates the B-pillar, resulting in an expansive glasshouse and flexible seating configurations, available in 1-3-2 or 2-2-2 layouts. It features sliding suicide doors, a three-pane sunroof, and robust plastic cladding on the lower sections, adding a rugged and bold aesthetic to its innovative design.
Toyota BZ4X
The bZ4X electric SUV concept, first unveiled in 2021, is built on the e-TNGA architecture developed with Subaru. Its design features sharp styling, chunky black wheel-arch trim, a contrasting roof, and a silhouette influenced by the popular RAV4 SUV. The front showcases Toyota’s ‘Hammerhead’ design language, reminiscent of the latest Camry sold in India.
In global markets, the production-spec bZ4X comes with a 71.4kWh battery, offering a WLTP range of 450km. It’s available in two variants: a single-motor version (204hp, 265Nm) and a twin-motor AWD version (218hp, 336Nm).
Lexus LF-ZC (Concept)
The Lexus LF-ZC concept offers a glimpse into the premium electric sedan slated for international launch next year. Designed with a modular structure, its centrally placed batteries free up space for versatile front and rear configurations, supporting both single- and dual-motor setups. Lexus claims the top-spec LF-ZC will deliver a range exceeding 1,000km upon production.
The concept features Lexus’s latest design language, emphasizing sharp, aerodynamic styling. Inside, it boasts a futuristic cockpit with a steering yoke incorporating steer-by-wire technology and digital control pads seamlessly integrated across the cabin.
Mumbai, Jan 22: The Maharashtra government has signed a record 31 MoUs with investment proposals worth Rs 6,25,457 crore in the field of steel, metals, renewable energy, infrastructure, cement, Lithium-Ion Batteries and Solar Modules on the sidelines of World Economic Forum summit at Davos.
The MoUs were signed on Tuesday in the presence of Chief Minister Devendra Fadnavis and senior government officers.
CM Fadnavis said, “The MoU signed today paves the way for Maharashtra’s comprehensive growth and development.” He further stated that this marks a new record for securing such a significant investment amount in a single day. Similarly, several investment agreements are expected on the second day as well.
Of the Rs 6,25,457 crore, JSW will invest a record Rs 3 lakh crore for Maharashtra’s Green Transformation and Tata Group will also make an investment of Rs 30,000 crore in multiple sectors.
The Chief Minister met with key executives of several companies and invited them to invest in Maharashtra. Among these, Tata Group Chairman N. Chandrasekaran held discussions with CM Fadnavis during which it was confirmed that the Group would invest Rs 30,000 crore in the state. The CM also met Carlsberg Group CEO Jacob Aarup-Andersen, who expressed interest in investing in Maharashtra.
The Chief Minister assured him of full cooperation for the group’s plans. Additionally, M.A. Yusuff Ali, Managing Director of the Lulu Group, conveyed interest in investing in Nagpur and expanding operations in Maharashtra.
CM Fadnavis held discussions with ReNew Power Chairman and CEO Sumant Sinha about a 15,000 MW pipeline and wind energy projects in the Beed district. Schneider Electric India’s Managing Director and CEO Deepak Sharma also met the Chief Minister. Discussions included the use of AI in the energy sector and strengthening ITIs in the state with assistance from the World Bank. Expansion plans in Ahilyanagar and Nashik were also hinted at. Mastercard APAC President Ling Hai held talks with CM Fadnavis, while Louis Dreyfus Company CEO Michael Gelchie discussed opportunities in agriculture, food processing, international shipping, and financial sectors. Emphasis was placed on enhancing collaboration in agriculture. The CM also met Cognizant CEO Ravi Kumar S. and discussed potential investments and opportunities.
“The series of meetings highlighted Maharashtra’s focus on attracting substantial global investments and fostering economic development,” said the Chief Minister’s Office in a release.
CM Fadnavis in his post on X said, “Extremely happy to witness the historic Rs 3,00,000 crore MoU signing between Govt of Maharashtra & JSW Group, with an employment generation of 10,000 in the regions of Chhatrapati Sambhajinagar, Gadchiroli, and Nagpur. Very much thankful to Sajjan Jindal ji for being a part of this historic moment at Davos, which will give a huge boost to Maharashtra’s industrial environment. It will give a big boost to Maharashtra’s industrial environment. The areas of this investment like Renewable Energy, Infrastructure, Cement, Lithium-Ion Batteries, and Solar Modules will play a huge role in our mission ‘Green Maharashtra.”
The government signed an MoU with Waaree Energy with a total investment of Rs 30,000 crore in green energy and solar components. it will create 7,500 jobs. The company chairman Hitesh Joshi was present.
The government inked an MoU with Blackstone-Panchshil Realty for an investment of Rs 25,000 crore for the development of the data centre. It will generate 500 jobs. Further, Blackstone will invest Rs 25,000 crore in Information Technology in the Mumbai Metropolitan Region. It will create 1,000 jobs.
The government inked an MoU with Erulearning Solutions for an investment worth Rs 20,000 crore in education. The government signed an MoU with ZR2 Group for investment worth Rs 17,500 crore in automobiles and EVs in Pune region to generate 4,000 jobs.
The state government and Balasore Alloys Ltd signed an MoU for investment of Rs 17,000 crore in steel and metals. The venture will generate 3,200 jobs. The company was represented by Satish Kaushik at the time of the signing of the MoU.
The state government and Reliance Infrastructure Ltd signed an MoU for investment worth Rs 16,500 crore in the defence sector. It will generate 2,450 jobs. The company was represented by Sateesh Seth.
Powerin Urjaa will invest Rs 15,299 crore in green energy and generate 4,000 jobs. Open Origin India Inc will invest Rs 15,000 crore in green energy to create 1,000 jobs.
Viraj Profiles Pvt Ltd and the state government inked an MoU for the investment of Rs 12,000 crore in steel and metals to generate 3,500 jobs. Neeraj Raja Kochhar, Chairman and MD of Viraj Profiles was present at the time of the signing of the MoU.
Avani Power Batteries will make investment of Rs 10,521 crore in electronics to generate 5,000 jobs in Chhatrapati Sambhajinagar. H2e Power will invest 10,750 crore in green energy to create 1,850 jobs in Pune region.
The government signed an MoU with Rural Enhancers for investment worth Rs 10,000 crore in social sectors including hospitals.
The government inked an MoU with Welspun for an investment worth Rs 8,500 crore in logistics to generate 17,300 jobs.
Essar in partnership with Blue Energy will invest Rs 8,000 crore in green energy to create 2,000 jobs.
Further, United Phosphorus will make an investment of Rs 6,500 crore in green energy to generate 3,000 jobs. The government signed an MoU with Olectra EV for investment worth Rs 3,000 crore in automotive and EV to generate 3,000 jobs.
Kalyani Group will invest Rs 5,250 crore in defence, steel and EV. It will create 4,000 jobs. The MoU was signed in the presence of CM Fadnavis and Vice-Chairman & Joint MD of Bharat Forge Limited Amit Kalyani. “Thank you Amit Kalyani for joining this MoU signing at Davos! This investment is special because it is coming to Gadchiroli, which will give better lives to so many,” said the chief minister.
Gensol will invest Ra 4,000 crore in electronics in Chhatrapati Sambhajinagar to create 500 jobs. The government inked an MoU with & El Mont for the investment of Rs 2,000 crore in infrastructure. It will generate 5,000 jobs. The company director Kabir Bhandari was present.
BookMyShow will invest Rs 1,700 crore in the entertainment sector to generate 500 jobs. Further, the government signed an MoU with Tembo for an investment worth Rs 1,000 crore in the defence sector. It will create 300 jobs. The company director Shabbir Merchant was present on the occasion.
The government also inked an MoU with AB InBev in the F&B segment for investment worth Rs 750 crore. Kartikeya Sharma, President, India & South East Asia of AB InBev was present on the occasion.
Moreover, the government inked an MoU with CEAT Limited for investment worth Rs 500 crore in automotive and EC to generate 500 jobs.
Bisleri International will invest Rs 250 crore in food and beverages in the Mumbai Metropolitan Region to create 600 jobs. The MoU signed paves the way for Maharashtra’s comprehensive growth and development.
New Delhi, Jan 21: India’s deal-making landscape witnessed a landmark year in 2024, with a record 2,186 deals valued at $116 billion, marking a 33 per cent increase in volumes and 76 per cent surge in values (year-over-year), a report showed on Tuesday.
Driven by India’s status as the fastest-growing G20 economy, with a 7 per cent growth rate driven by robust domestic demand, the country’s deal-making activity reached new heights, defying global economic uncertainty, and demonstrating the resilience of its economy, according to the Grant Thornton Bharat ‘Annual Dealtracker 2024’.
“As we look ahead to 2025, we are optimistic about the prospects for continued robust deal activity, fuelled by government reforms, a stable economy, and a thriving tech ecosystem, making India an attractive destination for investors despite global uncertainties,” said Shanthi Vijetha, Partner, Growth at Grant Thornton Bharat.
The mergers and acquisition landscape witnessed a record-breaking year, with 683 deals valued at $44.1 billion, marking a 37 per cent increase in volumes and a 75 per cent surge in values compared to the previous year.
Domestic consolidation drove growth, with 479 deals amounting to $23.5 billion, a 64 per cent increase in values, led by Indian conglomerates such as Adani Group, Aditya Birla Group and Nazara Technologies.
Outbound M&A also witnessed significant growth, with 121 deals valuing $16.9 billion, driven by two billion-dollar deals, according to the report.
The private equity landscape demonstrated resilience in 2024, with 1,298 deals raising $31 billion, up from 1,046 deals valuing $27.4 billion in 2023.
The year witnessed a 26 per cent rise in high-value deals (estimated at and over $100 million) and two billion-dollar deals.
The initial public offerings (IPO) activity reached unprecedented heights in 2024, defying global economic headwinds, with 86 listings raising a record $21 billion, more than triple the $6.2 billion raised in 2023, said the report.
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