Even as start-ups resort to layoffs to cut costs amid current volatility and market uncertainty, data from news18.com shows that corporate finances are under pressure as the number of ‘profitable enterprises declined this year. year. The data reveals that just 3.5% of startups that raised $100 million or more between January and June 2022 were profitable, down from 29.2% a year ago.
According to data from Venture Intelligence, a total of 57 companies in India raised funding of $100 million or more between January and June 2022, compared to 48 such companies during the corresponding period last year. Interestingly, it also showed that the overall funding for Indian start-ups this year is almost the same as last year, which shows a decrease in deal size.
Ajay Malik, Direct Director and Head (Investment Banking Advisory) at RBSA, said: “Even though the number of companies raising $100 million and above has increased in 2022, the total amount raised has remained stagnant, which indicates that the size of the transaction has decreased … thus representing a lower appetite for risk among the investor fraternity.
According to Venture Intelligence, only 3.5% of these start-ups (which raised $100 million or more) posted a positive Ebitda this year, while the percentage of these start-ups was 29.2%, showing thus a significant financial stress on India’s start-up ecosystem this year. Ebitda represents earnings before interest, taxes, depreciation and amortization.
As the Ebitda of all startups is not available in the records, Venture Intelligence data is only for companies whose data is accessible.
According to Venture Intelligence, 57 startups have raised $100 million or more in 2022 through June. Of these, the Ebitda of 45 companies is not available and only two of these companies posted positive earnings.
He also said that between January and June 2021, 48 companies mopped up $100 million or more. Of these, 18 companies’ Ebitda was not available on file, while 14 of those companies with available data reported positive Ebitda.
RBSA’s Malik said startup valuations are falling, funding is slowing and deal sizes are shrinking in a volatile market environment. These add to the financial difficulties of start-ups.
According to an industry expert, venture capitalists and private equity funds are now looking at the current profitability of start-ups rather than growth prospects, which was the past practice. “Thus, profitability has become an important factor in raising funds in the future.”
Due to financial difficulties, start-ups in India have resorted to layoffs to cut costs. Last week, edtech startup unicorn Byju laid off more than 600 employees, both permanent and contract.
Prior to Byju, next-gen companies like Vedantu, Unacademy and Cars24 also laid off more than 5,000 employees in India this year. Ola laid off around 2,100 employees from January to March this year, followed by Unacademy (over 600), Cars24 (600) and Vedantu (400). That aside, e-commerce company Meesho laid off 150 employees, furniture rental startup Furlenco 200, influencer-led social commerce startup Trell 300 employees, and OkCredit laid off 40 employees.
Recently, Unacademy co-founder and CEO, Gaurav Munjal, in a letter to employees, said, “We must learn to work within constraints and focus on profitability at all costs. (Funding) Winter is here… We have to survive the winter.
Leading venture capital firm Sequoia Capital, in its 51-page memo, recently told the founders of its portfolio companies that the era of rewarding hypergrowth at all costs is rapidly coming to an end, investors are turning to companies that can demonstrate their current profitability. “Capital becomes more expensive while macro becomes less certain, leading investors to deprioritize and pay less for growth.”
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