Weekly Musings – Big start-up updates for the week to June 30, 2023

3 Jul 2023 , 05:55 AM

For the month of June, overall start-up funding was just about $580 million. This is the lowest monthly funding figure since August 2020 and marks a sharp fall of 80% yoy in terms of start-up funding.

Start-up funding falls to $65 million in the week

For the week ended June 30, 2023 the start-ups saw fund raising of $65 million across a total of 42 deals on the street. That is 56.3% lower compared to the previous week. Interestingly, even the overall June 2023 funding at $580 million was the lowest since August 2020, showing the limited appetite for start-up funding at this point. Now, it is over to the deals of the current week! 

In a major fund raising, Lendingkart has bagged debt funding of $24 million during the week. This will be used to expand its credit book and the company has already raised funding of $143 million till date. Lendingkart uses algorithms based on big data and machine learning to fine tune credit decisions. In another funding round, Scapia (floated by former Flipkart executive Anil Goteti) has bagged $9 million in seed capital. Scapia has already launched a co-branded credit card with Federal Bank and will use the funds to expand its technological strengths. Koskii, the occasion wear brand, recently closed a Rs61 crore funding round from Baring Private Equity. Koskii is an occasion wear brand for women and is based out of Bengaluru. Koskii will use the funds to expand its offline presence, eve as it already services more than 10,000 PIN codes across India.

In the healthtech space, Karma Primary Health has bagged funding to bridge gaps in rural healthcare. It already runs over 25 clinics catering to rural people in the B2C format. It plans to expand its clinics to 80 spread across seven Indian states. It also offers a cloud based tech partnership platform for B2B partners. Meanwhile Oben Electric raised Rs40 crore to ramp up production capacity of its EVs to 100,000 units per day. It is expected to start deliveries of its flagship product around the first week of July. EV registrations have already crossed 1 lakh per month in May and still growing. Meanwhile, Billion Electric got $10 million funding to address loopholes in the commercial mobility sector. It launched electric tarmac buses in Bengaluru airport and will soon expand to 10 more Indian airports. Another healthtech start-up, WatchYourHealth also bagged an undisclosed sum to improve customer engagement. The company plans to expand beyond the borders of India into Japan, Singapore, UAE, and Bangladesh. In a related deal, ecommerce fulfilment start-up, Zippee, also bagged funding from Haldiram to strengthen its tech stack and boost hiring.

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. RTP Global announced a new $1 billion corpus fund and earmarked one-third the corpus to India. It is already invested in CRED and Rebel Foods in India. Epiq Capital marked the close of its $225 million fund raising. It will invest in the next generation technology companies in India. It will look to invest in around 10 companies with an outlay of $20-25 million each. Finally, Good Capital also launched its second fund worth $50 million. Good Capital invests in Pre-Seed Series A funding for start-ups. While the corpus is $50 million, it also has a Greenshoe option of $25 million on top of that. 

But the real mega opportunity for start-ups in India is that the Indian APP economy is slated to touch $800 billion or 12% of GDP by year 2030. Over the next 7 years, the spending on APPs is expected to grow at a CAGR of over 32%. In India, the top 3 app segments are social media, messaging, and shopping; and each of these segments have a very huge multiplier potential. That is what makes them unique. During the month, there were also several valuation downgrades of start-ups ranging from Byju’s to Swiggy to Paytm. In a fast growing start-up ecosystem, that is par for the course.

Big start-up strategies this week?

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

• The Byju’s loan default may have a soft ending as the lenders and Byju’s have decided to sit across the table to work out a resolution. Lenders have asked Byju’s for a balloon payment, higher coupon, and better investor protection. Lenders have given 3 months.

   

• Government of India has urged the Indian ecommerce players to not use dark patterns. These dark patterns are algorithms that are used to direct the customer to a particular product or service and influences their decision. Government wants these scrapped.

   

• Dream11 will replace Byju’s as the lead sponsor for the Indian cricket team’s jersey in the IPL matches. While crypto companies were banned from bidding for the rights, online gaming companies were allowed to join the fray.

   

• Zomato has rolled out a free platform to enable restaurants to make data based decisions. Zomato offers restaurants multiple layers of data like demand and supply gap, price, and demand shift trends. Restaurant owners can use this data free of cost to make more pointed decisions. Gross order value of food delivery is at over $800 million.

   

• Upgrad, the edtech venture floated by Ronnie Screwvala, is planning to acquire the US based Udacity. Now, Udacity is a talent transformation platform and has been looking to sell a majority stake in the company. The company is being approximately valued at around $120 million. Udacity has been struggling with customer retention.

   

• The south based Coromandel group will invest Rs204 crore in drone start-up, Dhaksha. This will give Coromandel an additional 32.68% stake in Dhaksha and it will be an all-cash deal. It values Dhaksha at around Rs625 crore. Coromandel already has 18.3% stake and they also see direct synergies with their existing business model.

   

• Tata Communications will acquire the NASDAQ listed Kaleyra for $100 million. As part of the deal, Tata Communications will also assume the outstand debt of Kaleyra. The company is being bought at a very significant premium to the market price and Tata Communications will take a 100% stake in the company. Tata Communications will leverage the strengths of Kaleyra to expand its footprint in the US.

Start-up story of the week – Are VCs responsible for start-up governance issues?

This has been a rather contentious issue in the last few months. Byju’s had come under fire for governance related issues. For example, it had raised funds for its business but existing bond investors had been kept in the dark. Byju’s has been extremely tardy with it comes to timely filing of annual numbers. It filed its FY21 numbers in late 2022 and is yet to file FY22 numbers. Also, Byju’s saw its auditors stepping down and 3 of the non-family directors also stepping down over governance issues. 

In this context, Nithin Kamath has a different perspective. Kamath is the founder of one of the most successful bootstrapped start-up in India and is now India’s largest brokerage house by volumes, Zerodha. Kamath feels that corporate governance issues at start-ups are an outcome of VCs overestimating the size and potential of the Indian market and pegging valuations accordingly. This has put undue pressure on the promoters of start-ups to show mindboggling performance quarter after quarter. Kamath feels that VCs should play a role in rectifying steep valuations rather than fuelling them.

One may not fully agree, but the debate is wide open. It remains to be seen, how the debate eventually evolves.