Weekly Musings – Big start-up updates for the week to June 23, 2023

26 Jun 2023 , 01:26 PM

Some of the big start-up funding deals of the week included Drools, Xylem, Ola Electric and Digantara. The start-up funding value in the week to June 23, 2023 was 21.6% lower compared to the previous week. The fund raises were spread across food and SpaceTech verticals during the week.

Start-up funding falls to $149 million in the week

For the week ended June 23, 2023 the start-ups saw fund raising of $149 million across a total of 20 deals on the street. That is 21.6% lower compared to the previous week, but then the previous week was skewed due to the big fund raising by Lenskart. Over to the current week! In a major fund raising, pet food start-up, Drools, has raised $60 million at an overall valuation of $600 million. The investor, L Catterton, gets a 10% stake in Drools. The funds will be used by Drools to strengthen distribution and expand the Russian market. Meanwhile, Digantara, a SpaceTech start-up, has raised $10 million from Peak XV Partners. It was Series-A funding in which Kalaari Capital also participated. The funds will be used to further develop its space mission assurance platform (Space-MAP), a sort of one-stop solution for all space operations.

Good Flippin Burgers, a burger brand, has got $4 million from Tanglin Venture Partners in Series-A funding. The funds will be utilized to expand its reach and also in boosting its supply chain. In another deal, hospitality start-up, TruLiv has secured $1.5 million from Conquest Global to provide housing for all demographic needs. This will basically be a co-living concept. Another PropTech player, CRIB, has raised $1.8 million in a seed round from We Founder Circle and Rebright Partners. CRIB offers a SAAS platform and currently more than 500 landlords are already collecting rents to the tune of Rs900 crore using this SAAS platform. There are also some interesting plans in the offing. Temasek is likely to lead a $300 million funding round for Ola Electric while Infra.Market is also in advanced talks to raise up to $150 million from Varde Partners. Also, Agritech start-up, WayCool is also looking to raise $50-70 million at a valuation that may be closing in on $1 billion.

As much as funding and funding plans matter, the funnel of funds raised by VCs and PE funds to investing in these start-ups also matter a lot. There was some interesting progress on this front too. Avaana Capital has secured $70 million funding for its Climate and Sustainability Fund. The fund will broadly invest in 3 sectors viz. energy transition & resource management, mobility & supply chains, and sustainable agriculture & food systems. In addition, it will also invest in innovative and tech driven climate solutions. Avaana is targeting total corpus of $125 million and is also backed by SIDBI. In another such funnel round, Blume Ventures closed its Continuity Fund at Rs200 crore. Its eventual target corpus is Rs400 crore. As the name suggests, the focus will once again be on sustainability and continuity. It is the third such fund raised by Blume Ventures.

Of course, there are two sides to any coin. Just as there were investments raised and investment funnels created, there were exits too. Carlyle Group took a complete exit from Delhivery, having earned about 2.7X returns on its investment. Carlyle Group is estimated to have invested Rs645 crore in Delhivery and realized Rs1,670 crore from the sale.

Big start-up strategies this week?

Here is a quick take on some of the key start-up strategies evidenced last week.

• Amazon plans to enhance its investment in India by $15 billion, taking its total investment into India in the next few years to $27 billion. This was confirmed by Andy Jassy to the Indian Prime Minister during his visit to the US. Earlier, AWS had committed to invest up to $12.7 billion into cloud services offerings in India.

   

• To add another feather to the India cap, Google will set up its Global Fintech Operations centre at the GIFT City in Gujarat. This was confirmed by the Google CEO, Sundar Pichai. With the UPI and the Aadhar ecosystem already in place, the Global Fintech Centre could further enhance India’s leadership in the fintech space.

   

• Paytm is slated to face stiff competition from PhonePe; not only in the soundbox space, but also in the merchant lending marketplace. However, despite competition, Paytm is expected to add nearly 15 million soundboxes in the next couple of years. Meanwhile, PhonePe will also allow banks and NBFCs to offer credit to its 3.5 crore merchants.

   

• Apple may offer credit cards in India in association with HDFC Bank. Tim Cook had met Sashidhar Jagdishan in this regard. Cook had also met up with the NPCIL for the launch of Apple Pay in the country. RBI has asked Apple to follow the standard protocol for credit card issue in India. It could offer a run for Google Pay and Phone Pe in India.

   

• Fintech platform, CRED, has acquired micro savings platform, Spenny. The latter people to save small change under an institutional framework out of their daily savings. Spenny is a micro savings platform backed by Y-Combinator and for CRED this is considered a natural funnel for its fintech offerings for the Indian market.

   

• Generative AI is supposed to change the way business is done and Freshworks is the latest name to jump on the generative AI bandwagon. It launched 3 products viz. Freddy Self-Service, Freddy co-pilot and Freddy Insights. They will automate tasks and generate actionable insights based on open AI LLMs. Freshworks is listed on the NASDAQ and had recently reported a loss of $42.66 million in the quarter ended March 2023.

   

• The latest set of insights from Google on the nature of search are quite interesting. The latest Google survey reveals that nearly one-third of the search queries in India are spoken. This is nearly 10 times the ratio of countries like the US were just about 3% to 4% of the queries are spoken. Google SVP, Prabhakar Raghavan, Indian search query algorithms will be designed to support text, voice, and images in equal measure.

Start-up story of the week – Why Byju’s needs to put its act together fast

Exactly about 3 years ago, everything was going right for Byju’s, India’s most valuable edtech offering. The company had built a solid library of educational content, they had hired some of the best minds in edtech, and they had the right marketing set-up to tap the student market aggressively. Catch them young and watch them grow was the motto. The lockdown only accelerated growth as millions of young and middle-aged Indians sought courses and study material from Byju’s to spruce up their skills. At that point, Byju’s had already crossed indicative valuations of $20 billion.

Byju’s still claims to be worth more than $20 billion, but at least the big investors don’t think so as most of the PE investors in Byju’s have written down the enterprise value of their investment to less than $10 billion. Fall in valuations was just one side of the story but it suffocated the funding pipelines for Byju’s. To add to their woes, they had taken loans of $1.2 billion to fund high cost acquisitions like Aakash. Byju’s recently defaulted on its debt commitment. While there is a legal case in court, a default is a default. It will only make fund raising all the more tough for Byju’s.

But the bigger problems pertained to governance and transparency. It filed its FY21 annual results only in September 2022. Byju’s is yet to file its FY22 numbers, at a time when most Indian companies have completed filing FY23 results too. Such laxity led to Deloitte, Haskins & Sells resigning as statutory auditors of Byju’s. To add grist, even 3 non-family directors on the board (representing top investors) tendered their resignations citing differences with Byju Raveendran on strategy and policy matters.

Can Byju’s get out of this mess? Transparency is the key. The best companies in the world have laid off people when it is inevitable, so that is par for the course. It just needs to sit down with investors, make clear commitments and then stick to it. Being honest and transparent can actually solve most of the problems that Byju’s faces today.