We're back ... to keeping up with India
Jan 12, 2023
First off, happy new year! Here’s wishing you, and your loved ones a healthy and happy 2023. In all honesty, after the roller coaster ride of last year, we all probably need it.
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2022 quite the year for both of us personally, with new jobs, moving cities and continents, and new family additions. So, it was perhaps not a surprise that keeping up with the newsletter became a bit too much to take on. Which is not to say, we weren’t engaging with the ecosystem — as investors in early stage start-ups we remain committed to India, even if we haven’t regularly chronicled it. This year though we are committed to getting things going again on the newsletter front, and rebuilding our habit of writing, with new posts weekly every Wednesday/Thursday.
A look back at 2022, a look ahead to 2023
To start off this year, we wanted to actually look back on 2022, before looking ahead. Yesterday, reading an FT article about the saga that Tesla has been over the last year, got us thinking about what an apt symbol of the last year the company is. The last week of the year was brutal for the iconic company, taking it to its lowest point in two years. Tesla was worth $1.2T at the beginning of the year. It’s market cap now is ~$350B. While not all tech companies have had as precipitous a drop, anything tech has been battered this year. And the winds changed so quickly early on in the year too. As inflation remained persistent, and interest rates went up, tech stocks suddenly looked very, very overinflated. Free money is no longer a thing, and growth at all costs has gone out of the window. The idea that people were buying NFTs of Bored Apes seems like it happened in another time, but it really wasn’t so long ago!
Of course, the impact of the shift in the public markets also began impacting private markets. And like everything, what was happening in the US also impacted the funding market in India. In short, it was a tough year for Indian start-ups and founders. In 2022, India added just 22 unicorns to its tally, down 51 per cent from the 46 it had added in 2021. To highlight how tough things got in the second half of the year: of the 22, just four unicorns were added in the second half of the year. VC investments fell by 35 per cent drop to $24.7 billion last year, as did the total number of deals.
We have seen the knock-on effects of this slow down even at the very early stage. Except for a couple of months post-August, the market has felt exceptionally slow across the board. Looking forward to this year, we have had multiple conversations with folks based in the US who are concerned about Q1/Q2 and it sounds like the venture ecosystem will be quite sluggish. We are assuming it will be similar for India. A lot of funding in India depends on how capital is deployed in the US, and what additional investments funds then have the capacity to make. So it will be crucial to continue monitoring the US economy from our perspective, as it is a leading indicator of how the ecosystem in India evolves as well. That of course isn’t to say that there won’t be activity in the market. If anything its a great time for some of the bigger conglomerates to snap up smaller, more agile, tech-focused companies, and we expect to see more M&A in the coming year.
Stories we have been following
Mamaearth’s upcoming IPO: Mamaearth’s parent company, Hosana Consumer, filed its draft red herring prospectus with market regulator SEBI in the last week of December. Hosana has an interesting portfolio of personal care and beauty brands, and has been a first mover in the D2C space. The company actually became a unicorn in 2022 after raising $52 million in its Series F funding round led by its early backer Sequoia. We think this IPO will be interesting since we think it will be one of the few IPOs we are likely to see of a venture backed start-up for a while, given the broader economic climate. And it will be interesting to see where the company’s valuation settles. Already there’s been a bit of a brouhaha about how overvalued the company is (even though no valuation has been mentioned in public). Given the underperformance of many of the sexy venture-backed / new age companies that have IPOd in the past 1 - 1.5 years, will there be appetite for a loft valuation here? To be seen. In the meantime, the Hosana DRHP is a good read for some insights into consumer trends and the growth of the beauty and personal care products space in India.
Kreditbee raises funds: It’s generally been a tough time for fintechs in India, both with the RBI consistently throwing curveballs to those operating in the space, and because an uncertain macro climate is always challenging for the sector. Not so for Kreditbee, which raised ~$200M in Series D funding at a valuation of ~$700M. Kreditbee targets the new to credit customer segment, offering instant micro loans starting as low as $12. By all accounts this is a tough segment to play in, so it speaks to the investors’ conviction in the company that the round went through even in this funding environment.