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#NTLF22: A Tectonic Shift of Capital Towards Innovative and Sustainable Future
#NTLF22: A Tectonic Shift of Capital Towards Innovative and Sustainable Future

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Insights from Radhika Gupta, MD & CEO, Edelweiss AMC and Steve Streit, Founder & Lead Partner, SWS Venture Capital in discussion with Chandra Ranganathan, Moneycontrol.

 

The last two years of the COVID-19 pandemic have been the tipping point for startup activity globally, and in India particularly. 25,000 startups, 42 unicorns in 2021 in India, and counting…! Government of India released a data point that suggests that 75% of Indian cities have a startup registered with DIPP.

A tectonic shift is happening in the global public and private markets with money chasing the startups –

Back home, 2021 was action-packed for India. India’s 1st food delivery company, Zomato, got listed in 2021, after Nazara Technologies in March, and started the chain effect, including a global listing of Freshworks on Nasdaq. Trends that defined India’s startup IPOs included:

 

 

Tailwinds that helped shape India’s nascent new-age listings, but with riders for 2022:

  • China Tech crackdown – China’s market wrote off USD 1 trillion due to a massive tech regulatory action, starting with the Ant Group. Ant Group, to have listed in 2020 at USD 320 billion, was trading at almost one-fourth its high-time valuation. Ripple effects of Chinese regulatory action on other tech startups in the country will likely continue for more time. China has, most recently, asked state banks with exposure to the Ant Group to report comprehensively at the earliest.
  • Quant easing in most markets, with India returns lucrative overall, led droves of FPIs/FIIs/FDI. With Fed’s affirmation to a strong and continued hawkish stance, this is beginning to reverse fast. More domestic inflows still go to MFs, although startup proportion is rising. Fund houses have shown muted interest in new-age IPOs, particularly the EBIDTA-red companies.
  • India market grew strong on Tech and banking growth, but may see some rationalization in 2022 overall, as macros on Ukraine-Russia conflict, US-China trade war, supply chain bottlenecks, and commodity/crude prices turn less favorable and corporates get back to improving fundamentals in a hybrid normal
  • Comparatively, when foreign investments “reshore,” they could be targeting value-based companies and fundamentals in their respective countries. India too, should be looking into identifying and rewarding those startups/scaleups with calibrated valuations that are rooted in true business fundamentals, and should be looking at making it easier for these companies to emerge, list and operate in India. A critical aspect of that is promoting the domestic risk capital arena.

 

“Whether the gravy train will continue (on skyrocketing valuations) … maybe the gravy is getting too hot and dry…”

Steve Streit, SWS Venture Capital

 

While the listings showed a good sectoral mix, yet, large investors believe a gap correction is needed as the core sectors of India are still un- or under-represented in the IPO boom. It is these sectors where EBIDTA-positive, quality-based, high-value assets will help grow the economy – manufacturing, agri-processing, heavy engineering, and new-age real estate.

 

While the India new-age IPO market is still nascent, the shift in momentum is typical and will only expand further. What will need to be seen are three major factors playing out in 2022:

    • Role of domestic private capital
    • Speed of new-age business listings, with eased down exit rules
    • Valuation multiples and the first principles driving them – assuring a lucrative exit to investors and bringing-in domestic retail investors watching from the fringes

 

Expert opinion is that capital providers will become more judicious. There is a lifecycle of startups – goes from rewarding the innovative story, to seeking market share growth, and then to profits. Story cycle may get listing valuations, only if the directional promise holds.

This is the law of financial gravity. And it is imperative to move along the market lifecycle for startups too.”

Radhika Gupta, Edelweiss

 

The most important advice for new-age startups has these three important first principles. New-age businesses should show direction to consistent and sustainable growth, with:

  • Clean story – the market will understand!
  • Clean unit economics
  • Path to profitability, after a great story plays and revenues and customers start coming in

Onwards and upwards to the India new-age business story...!


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Namita Jain
Deputy Director, Research

Researching technology for actionable impact since my 12 years in tech strategy and advisory

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