M. Sriram

MUMBAI (Reuters:) The value of Meesho, an Indian ecommerce rival to Amazon (NASDAQ;), has more than doubled in the past year to $5 Billion. It was funded by marquee investors SoftBank (NASDAQ:) and Fidelity, who poured hundreds of millions of dollars.

These investors were hoping to take advantage of the boom in India’s technology startups. In 2021 alone, $35 billion was raised in new funding. However, this tide has now turned. Investors are facing new uncertainty as concerns about corporate governance continue to loom large.

“We’ve never seen this kind of slowdown in the past five- to six years.” It will be terrible,” stated Anand Lunia, a venture capitalist at India Quotient (NASDAQ), who has been an investor in over 70 startups since 2012.

“I anticipate a lot more zombie unicorns.” Companies that became unicorns without having business models are no longer hiring. However, they won’t die.

Two people who are familiar with Meesho’s plans told Reuters that Meesho now wants to increase debt and reduce expenses following failures to raise $1 billion in fresh capital. This has made investors nervous about Meesho’s $45 million monthly cash burn and fierce competition.

Meesho has not responded to my request for comment.

Its struggles, however, are just a few of many signs that a troubled future awaits Indian startup founders.

The plummeting Indian stock tech stocks is worrying, however, investors worried about the corporate governance of Indian companies are increasing their scrutiny, which can delay funding rounds. Two venture capital executives stated that this was due to increased scrutiny.

They also said that there are worries about India’s valuations being too high. This is even though startups are using discounts to get a low price and have a poor outlook on revenue.

It could hamper the unimaginable growth of Indian startups and make them less attractive.

8 executives from venture capital firms and startups expressed concern that there would be a decrease in valuations and less money to support growth.

Lunia stated that he told the companies where his company has made investments to make sure they have enough liquid cash for 18 months and reduce their spending if needed.

BharatPe was an Indian startup that offers payments and is backed by Sequoia Capital. It announced last week it will overhaul its governance procedures after an internal review.

Vedantu, another online tutoring company, is being backed in part by Tiger Global. The firm has a market capitalization of $1B and laid off 200 workers this month.

Tiger is known for targeting larger Indian companies, however, it now tells bankers that it won’t consider transactions involving startups with less than $200m. This, according to two people who have direct knowledge.

Tiger has not responded to queries from Reuters.

PREPARE FOR THE WORST

There are more than 60,000. Startups in India. Prime Minister NarendraModi called the present decade “techade”. He added that “new unicorns are appearing every few weeks.”

India did not have any new unicorns in April, a month that saw the country’s first ever “unicorn” (a term used to describe startups with a valuation above $1billion).

Venture Intelligence data shows that Indian startups have raised $5.8billion in March and April. This is a drop of about 15% over the same period last year.

A recent dinner was held in Bengaluru by Insight Partners (a U.S. company that manages over $90 billion of assets) and featured executives telling Indian founders they would focus more on early stage companies, as well as invest less due to the tech crash.

Insight has not responded to our request for comments.

In recent weeks, many tech companies around the world have experienced financial difficulties due to rising interest rates as well as conflict in Ukraine.

SoftBank Japan is India’s largest investor in tech, having invested more than $14 Billion. However, it has now reported a loss record of $26.2B at Vision Fund, its investment arm.

India suffered its first tech-IPO disappointment in November when SoftBank-backed Paytm, a payments app for mobile payment apps crashed 27% on its debut. This triggered criticism that it overvalued Paytm and didn’t prioritize profitability.

Paytm plunged another 62% in the past. Their shares have fallen 67% and 43%, respectively, despite blockbuster listing by Zomato, an Indian food delivery company, and Nykaa, a beauty retailer, from India.

Three Indian startups founders stated that their investors had recently informed them that easy money was over. They now need to demonstrate a path to financial success.

One of the founders said it clearly: “Prepare to the worst and hope for the best.”

Paytm stock performance since initial public offering https://graphics.reuters.com/INDIA-STARTUPS/dwpkrndgzvm/chart.png