Startups lose growth & funding, shed value

American fund manager Invesco recently marked down the market value of food aggregator Swiggy from $8 billion to $5.5 billion. Invesco has invested around 700 million dollars in Swiggy.

The market value of the online food delivery app has come down to $5.5 billion, which means that it has become smaller than its rival Zomato. The market value of Zomato is said to be $6.9 billion. However, just like Swiggy, Zomato was also in the same situation. At one point of time the market value of Zomato had crossed $13 billion.

Swiggy is the second decacorn which has seen a decline in its valuation. Earlier, American investment company Blackrock had reduced the valuation of edtech company Byju’s to $11.5 billion. This was the same company which had a sky high market value of $22 billion during Covid.

Back in September 2022, SoftBank also slashed Oyo’s market value from $10 billion to $2.7 billion. Recently, American investment management company Neuberger Berman also reduced the valuation of its two Indian portfolio startups Pine Labs and PharmEasy. Their valuation decreased by 38% and 21%, respectively. Prior to this, valuations of many big startups like Snapdeal, Shopclues, Quikr, Hike and Paytm Mall had also plummeted.

You will be able to get a clearer picture of the dire situation of startups from a report by Market Research Platform Tracxn. There are currently 115 unicorns in the country, out of which the data of 80 startups is publicly available.. and according to this report, out of the 80 startups, only 17 unicorn startups are profitable.

Why are the valuations down?

The decline in Swiggy’s market value comes at a time when startups are posting huge losses and are resorting to layoffs as part of their efforts to conserve cash and focus on profitability.

Significantly, in January this year, the online food delivery company had fired 380 employees. The company cited challenging economic conditions and sluggish growth in its business as the reason. And this is not just for swiggy, many startups are more or less in the same situation.

In the first four months of 2023, 41 startups had laid off around 5,868 employees. Whereas in 2022, 52 startups had laid off about 18,000.

Funding issues

This retrenchment has to do with the delcine in funding. In recent times, there has been a huge decline in funding in Indian startups. Funding has seen a decline of more than 20% on an annual basis.

Industry experts say that one of the major reasons for the deteriorating condition of startups is that they tend to overestimate their growth and while getting huge investments, they also do heavy hiring.

Later on, this hiring becomes a burden on them, then they resort to retrenchment. That is, there is a lack of focus and direction. There is also no clear strategy regarding the expenditure. They are spending heavily on advertising and marketing.. Take the example of skincare startup Mama Earth.. This startup has spent 42 percent of its sales in 2022 on advertising and marketing.