Covid-19 impacted heavily on Indian startup ecosystem. No clarity about when the operations started with full capacity and when these revenues and growth patterns will revive, risk premiums are expected to go up significantly, warranting a re-evaluation of valuation multiples, the report said.
Management consultant Duff and Phelps said in report that the risk premium for investing in Indian startups has gone up significantly due to covid-19-led disruptions, and the valuation of ongoing deals may have taken a considerable hit, this problem is faced by global startups and Indian startups also facing the same.
“With covid-19 causing a severe disruption in business operations, many Indian businesses have seen a major portion of their revenue streams erode rapidly. Without clarity on when these revenues and growth patterns will revive, risk premiums are expected to go up significantly, warranting a re-evaluation of valuation multiples,” the report said.
For the upcoming next three quarters, there might be down-rounds for various consumer internet startups, particularly in travel, tourism, entertainment and offline, or hyperlocal, merchandising, as individuals continue to remain indoors due to lock down and safety concerns.
The covid-19 pandemic has also impacted deal flow in startups funding. The decline in funding activity can be attributed to the down-round protection rights, which investors might be executing, making it harder for startups to negotiate deals. A down-round refers to financing, wherein the valuation is lower than the previous round, the will lead startups to postpond their fund raising plans.
The report said venture capital (VC) and private equity (PE) funds are focusing on helping their portfolio companies with additional equity infusion and bridge financing, to help the management teams to firefight on multiple fronts.
Valuation is a key factor for startups and at present situation; founder must wait and watch for the best valuation and funding. Last few weeks fundraising by Indian startups also at lowest level.