?? Markdown madness

We have a pertinent topic at hand today.

The stress in the Indian startup and tech world has deepened, with at least five valuation markdowns coming to light in recent weeks. Unicorns Swiggy, Pine Labs, Oyo, Byju’s and PharmEasy are all contending with investors’ move to peg their worth lower.

While such markdowns don’t affect companies’ actual valuations, they serve as shocks to the system.

And talking of wake-up calls, SoftBank has cashed out over $1 billion from Indian companies in the past 18 months. The exits are part of what it calls a phase of “total defence”. Last month, The?Arc?reported on how Tiger Global had sold its entire stake in Freshworks for $1 billion-plus.

SoftBank and Tiger are the biggest backers of India’s tech ecosystem. So, the message is clear.?

The moves suggest that limited partners, the people investing in venture-capital funds, are increasingly demanding cash visibility from money managers. Sitting on markups is no longer enough.?

“No one (in the VC world) wants to admit it, but questions are being asked about exits, investment thesis and, most importantly, drawdown terms,” said a fund manager.?

Operators, meanwhile, are doing what’s right. The chief executive of payments player Pine Labs, Amrish Rau, is focusing on prioritising margins over growth. So are the founders at consumer brand Mamaearth. Both have delayed their stock debuts.

?With the narrative shifting from growth to EBITDA, what outcome should one expect from all the capital given to tech companies on forward growth multiples ($38.5 billion in 2021, $25.7 billion in 2022)?

How would you feel being Alpha Wave (Falcon Edge), which last valued Pine Labs at $5 billion, or Sofina, which priced Mamaearth at $1 billion?

The question isn’t whether companies will survive. Most will. The concern is if they can thrive and provide investors from the batch of 2021 realistic hopes of 10X returns.

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