57 Startups Raise Above $100 Million This Year, Only 3.5% Were Profitable

Even as startups have been resorting to lay-offs to cut costs amid the current volatile and uncertain market conditions, data sourced by news18.com shows that the finances of the firms are under stress as the number of profitable companies has come down this year. The data reveals that only 3.5 per cent of the startups raising $100 million or above during January-June 2022 were profitable as compared with 29.2 per cent in the year-ago period.

According to the data from Venture Intelligence, a total of 57 companies in India raised funding of $100 million or more during January-June 2022 as against 48 such firms during the corresponding period last year. Interestingly, it also showed that the overall funding for the Indian start-ups this year is almost the same as last year, showing shrinking deal size.

Ajay Malik, managing direct and head (investment banking advisory) at RBSA, said, “Even though the number of companies raising $100 million and above have increased in 2022, the total amount raised has remained stagnant, indicating that the deal size has gone down…thus representing lower risk appetite among investor fraternity.”

According to Venture Intelligence, only 3.5 per cent of these start-ups (that have raised $100 million or above) showed their Ebitda in positive this year, while the percentage of such start-ups were 29.2 per cent, thus showing significant financial stress on India’s start-up ecosystem this year. Ebitda stands for earnings before interest, tax, depreciation and amortisation.

As not all startups’ Ebitda is available in records, the Venture Intelligence data involves only those companies whose data is accessible.

According to Venture Intelligence, 57 start-ups raised $100 million or above in 2022 till June Out of these, Ebitda for 45 companies is not available and only two such firms showed their earnings in positive.

It also said that during January-June 2021, 48 companies had mopped up $100 million or more. Out of those, 18 companies’ Ebitda was not available in records, while 14 such firms whose data was available reported positive Ebitda.

RBSA’s Malik has said start-ups’ valuations are falling, funding is slowing and deal sizes are shrinking amid a volatile market environment. These are adding to the start-ups’ financial woes.

According to an industry expert, venture capitalists and private equity funds are now looking at the current profitability of start-ups rather than the growth prospects, which was the practice earlier. “So, profitability has become an important factor to raise funds going forward.”

Due to financial stress, start-ups in India have been resorting to lay-offs to cut costs. Last week, edtech unicorn start-up Byju’s laid off over 600 employees, including both permanent and contractual.

Before Byju’s, new-generation enterprises including Vedantu, Unacademy and Cars24 have also let go of over 5,000 employees in India this year. Ola has laid off about 2,100 employees during January-March this year, followed by Unacademy (over 600), Cars24 (600) and Vedantu (400). This apart, e-commerce firm Meesho has laid off 150 employees, furniture rental start-up Furlenco 200, influencer-led social commerce start-up Trell 300 employees and OkCredit has let go of 40 employees.

Recently, Unacademy co-founder and CEO Gaurav Munjal in a letter to employees said, “We must learn to work under constraints and focus on profitability at all costs. (Funding) winter is here… We must survive the winter.”

leading venture capital firm Sequoia Capital in its 51-page note recently told founders of its portfolio companies that the era of being rewarded for hypergrowth at any costs is quickly coming to an end with investors shifting towards companies who can demonstrate current profitability. “Capital is becoming more expensive while the macro is becoming less certain, leading to investors de-prioritising and paying up less for growth.”

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