Startup ecosystem witnessing green shoots

US-based asset management firm Baron Capital Group has increased the valuation of food and grocery delivery company Swiggy and fintech platform Pine Labs. It marked up the valuation of its stake in Swiggy by almost 34 per cent, valuing the firm at $8.54 billion. Similarly, valuation of Pine Labs has been increased by 10 per cent to $4.92 billion. These developments are at a time when food delivery platform Zomato’s valuation breached the $10 billion mark as the company posted its maiden profit this month. After months of slump, instant delivery startupZepto became the first unicorn this month. The company raised $200 million in a new funding round at a valuation of $1.4 billion. US-headquartered StepStone Group was the lead investor in this round, while Goodwater Capital and existing backers, including Nexus, Glade Brook Capital and Lachy Groom, also participated in the round. Meanwhile, late-stage technology investor SoftBank Investment Advisers, which has made more than $5.5 billion in exits from its Indian portfolio, is willing to write cheques worth $50 million and above in Indian startups. Though late stage funding announcements are a rarity, early stage funding news hogged the headlines in recent months.

Enterprise software firm DynamoFL, direct-to-consumer (D2C) brand Aretto, traveltechstartup Teleport and fintech startups Plus and BizPaysecured early-stage funding in August. These fundings have been secured when Indian startup ecosystem is going through a severe funding winter. Funding to Indian startups plunged about 77 per cent in the first seven months of 2023 compared to the same period last year. In total, startups raised $4.4 billion in private equity and venture capital (PE/VC) funding in the January-July period, down from $19.3 billion a year ago. Funding deals plunged to 344 in this period against 821 in the first seven months of 2022.

Either way, these developments show some signs of early recovery. According to experts, Indian startups have taken many measures to weed out the excesses of pandemic years. Firstly, operational cost has been significantly reduced across the board by reducing the headcount. Ironically, more than 20,000 staffers have lost their jobs in the last one year. Moreover, marketing budgets have been slashed drastically.

Other discretionary costs have also been reduced. Owing to such measures, many startups today have a better visibility in terms of cash flow. Most importantly, the focus of many startups has shifted from revenue growth to growing profitably. This is definitely good news for the entire ecosystem, per se. After all, the fundamental tenet of any business is to make profits. This can’t be ignored with aggressive focus only on growth. Hearteningly, while some companies like Zomato have started reporting profits, many others have become EBIDTA positive. Indian startups have learnt many lessons in the last one year. Hopefully, these wakeup calls will hold them in good stead even when the funding environment shows signs of revival. For healthy and sustainable growth prospects, each startups has to grow on the profit front. And that is the biggest takeaway from the current environment.