The results of startups show how COVID and the war between Russia and Ukraine affected new companies. SoftBank, a Japanese company that invests in tech, lost a huge $23.4 billion in the April-June quarter. It got $17 billion from the Vision Fund investments it made.
The conglomerate cut the fair prices of 284 of the companies it owned. The biggest hit was because of Alibaba, a huge company in China. In addition to markdowns, the weak Yen also hurt the company.
Many of the 284 companies whose prices went down are not on the stock market.
Only 35 companies in both Vision Funds saw a bigger rise in their fair valuations than the rest of the companies.
The fact that SoftBank is lowering the value of its investments has an effect on the Indian startup ecosystem. The company is the biggest investor in the country. It has money in Flipkart, Zeta, and Meesho, among other companies.
One of the worst hit parts of the market has been the new-age companies in the listed space. Investors ran to companies that had a clear flow of cash to stay safe. But since the market has been going up lately, the stocks of new-age companies have been going up again.
The issue is in the space that isn’t on the list. In his presentation to investors, SoftBank CEO Masayoshi Son said that even though listed tech companies have seen their valuations go down in many public markets around the world, the leaders of unlisted unicorn companies still think their valuations are good and don’t want a flat or down round.
Markdowns don’t just happen at SoftBank. Tiger and Sequoia, two other investors, have also seen their stocks go down.
This means that the companies would have to either get the money they need from new private equity investors at the price they want or make enough money on their own to buy time until they could get the money they need from their main investors.
Markdowns could hurt the Indian startup sector because companies and their main investors will have to take a hit on their valuations.
Son said in his presentation, “…So, we will have a longer funding winter until a bunch of unlisted companies fix their valuations to match those of public companies.”
The value of listed companies has dropped more than that of unlisted companies. If the market keeps going down because of the war between Russia and Ukraine, you can expect more markdowns in the coming quarters, and they will be bigger in the unlisted space.
Since LIC’s IPO, the Indian primary market hasn’t taken off, and it’s not likely to do so soon. There won’t be many ways for Indian new-age companies to get money unless they’re willing to take a hit on their valuations. If they do this, it will affect the startups that are listed on the bourses.
As per Son’s comments, new-age start-ups have to face a “funding winter” if they don’t adjust their valuations. Things seem to have reached an impasse between the investors and their investments. Both of them do not want to change their stand.
Does this mean that that bubble has burst in the Venture Capital / Angel Investing space? We have to wait and see if that’s the case.
