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 NCAP Awards 5-Star Crash Test Rating to Mahindra Thar Roxx
The Mahindra Thar Roxx has earned a prestigious 5-star rating in Bharat NCAP’s latest crash tests, reflecting its commitment to safety. Recently evaluated under stringent testing, the SUV excelled with a 31.09 out of 32 score for adult occupant protection and 45 out of 49 for child safety.
Tested in its AX5L and MX3 variants, the Mahindra Thar Roxx delivered notable results, scoring 15.09 out of 16 in the Frontal Offset test and a perfect 16 out of 16 in the Side Impact test. The assessment revealed strong protection for most areas, with adequate ratings for the driver’s chest and lower legs.
The Mahindra Thar Roxx has received high marks for child occupant safety, scoring 24 points in Bharat NCAP tests, along with 12 points for CRS (Child Restraint System) installation and a Vehicle Assessment Score of 9. This top-tier safety rating applies to all Thar Roxx units produced from November 2024 onward, underscoring Mahindra’s dedication to enhancing safety features across its SUV range. Additionally, Mahindra’s XUV400 and 3XO models have also achieved 5-star safety ratings, further emphasizing the automaker’s commitment to robust safety standards.
The Mahindra Thar Roxx offers two interior themes – Classic Ivory and a new Dark Mocha Brown. Comfort and convenience are prioritizing with ventilated seats, leatherette upholstery, a digital driver display, a larger 10.25-inch touchscreen, a high-quality Harmon Kardon sound system, a panoramic sunroof, rear AC vents, wireless connectivity for Apple CarPlay and Android Auto, and a six-way adjustable driver’s seat, combining practicality with luxury.
Mahindra Thar 5-door comes packed with safety and interior upgrades to enhance its appeal. On the safety side, it includes essentials like six airbags, three-point seatbelts for all occupants, hill control features, electronic stability control, and a seatbelt reminder. Advanced driver-assist features, such as autonomous emergency braking, adaptive cruise control, lane-keeping support, lane departure alerts, and a 360-degree camera system with blind spot monitoring, add an extra layer of protection.
Mahindra Thar Roxx offers two engine choices: a 2.0-litre turbo-petrol and a 2.2-litre diesel. The petrol engine comes in two setups—150 bhp and 330 Nm of torque for the manual, and 174 bhp with 380 Nm for the automatic. The diesel option is available only with four-wheel drive.
Business
Why The Indian Stock Market Struggled: Inflation, FPI Outflows, And Currency Pressure; Everything You Need To Know
The Indian stock market on Wednesday (November 13) wrapped the another challenging day, marking the fifth consecutive session of losses.
The Sensex and Nifty, the two benchmark indices, both ended lower amid concerns over inflation and a broad selloff in metal stocks.
Market Snapshot
By the close of the trading session, Sensex was down by 984.23 points, or 1.25 per cent, ending at 77,690.95. Nifty 50 followed suit, shedding 324.40 points, or 1.36 per cent, to settle at 23,559.05.
The day saw a sea of red on both the Sensex and Nifty, with the majority of stocks ending lower. Among the few gainers were NTPC, Tata Motors, and Infosys, which saw minor upticks on BSE.
However, the broader market was dominated by heavy losses, especially in stocks such as JSW Steel, State Bank of India (SBI), Adani Ports, Mahindra & Mahindra (M&M), and Tata Steel, all of which posted declines.
Reasons behind the sharp decline
One of the major factor contributing to the market’s downward trajectory is the growing concern related to inflation.
As per the data which released by the Ministry of statistics and Programme Implementation regarding the India’ retail inflation, it showed that for the month of October, it surged to 6.21 per cent, breaching the Reserve Bank of India’s (RBI) upper tolerance limit of 6 per cent for the first time in over a year. The primary factors that contributed to surge include rise food prices, driven by the extended monsoon season and crop damage.
Adding to the pressure is the continued outflow of foreign portfolio investments (FPIs). On November 12, FPIs sold shares worth Rs 364.35 crore, bringing the total outflows for November to Rs 23,911 crore
The Indian rupee also struggled on November 13, weakening by 1 paisa to close at 84.38 against the US dollar.
The rise of the US dollar, which surged 1.8 per cent in November, has been exacerbated by the US presidential election result and higher bond yields. The US 10-year bond yield spiked to 4.42 per cent, further diverting capital away from emerging markets like India.
Business
Trump Victory Revives The Crypto Mania; Bitcoin Touches 81,000 Mark, Other Virtual Currencies Also Surge
The world of cryptocurrency, which was enduring its long-drawn-out winter since the end of the pandemic, appears all set to come out of its ‘haitus’.
And this new surge has been powered by the recent triumph of Donald Trump at the 2024 US election. The president-elect, Donald Trump, who once thought that crypto was a ‘scam’, has come a long way. Donald Trump, by all means, is the most crypto-friendly president that the US has had so far.
Bitcoin
As a result of this newborn optimism, major names in the crypto business. The biggest of them all, Bitcoin, saw the biggest jump. Bitcoin scaled the USD 80,000 mark for the first time.
In the past 5 days, the cryptocurrency has surged in value by 7.76 per cent or USD 5,865.47, taking the overall value to 81,456.88 for one USD. In the Indian context, one Bitcoin is worth Rs 68,72,585.50.
Ethereum
And it is not just Bitcoin that has seen its value gallop. The second biggest name in the crypto world, Ethereum has observed a rise in its price since Trump’s victory. 8.71
In fact, this crypto has seen an even bigger jump of 17.00 per cent or USD 462.66, in the past 5 days, taking the overall value to USD 3,184.54.
Ripple
Another cryptocoin, Ripple, has also seen its prices rise. In the past 5 days alone, the value of this digital currency has jumped to USD 0.59.
This came to pass after an 8.71 per cent USD 0.05 rise in its value.
Dogecoin
The meme coin or a currency that was started as a joke, Dogecoin or ‘Dog Coin’ also saw a gargantuan rise in its prices. Just in the past 5 days, Dogecoin jumped in value by a substantial 49.76 per cent.
The price increased by USD 8.24, taking the overall value to USD 24.80. It is to be noted that Tesla boss Elon Musk, who is a close ally of Donald Trump, is a major proponent of this cryptocurrency.
One of the controversial policies that Trump has advocated throughout his campaign is weakening the US Dollar and loosening any scope of scrutiny on cryptocurrency. In fact, it is even reported that he would ‘fire’ the Security Exchange Commission chair, Gary Gensler. Gensler has been at the forefront of attempts to regulate cryptos.
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