National Start-up Day: InnoVen Capital says high valuation of late-stage companies a concern; exit activity to be muted

InnoVen Capital, one of India’s earliest venture debt providers, with investments in the likes of BYJU’S, Swiggy, Myntra, Blinkit, OYO, PharmEasy, boAt, and several other unicorns, expects the tough funding environment that defined 2022 to continue this year as well. 

“This would be more pronounced for growth/late-stage start-ups, where high valuations are a concern, given that public market tech valuations have corrected significantly over the last 9-12 months,” Ashish Sharma, Managing Partner, InnoVen Capital, told Business Today.

Late-stage funding was the worst hit in 2022, with investors tightening their purse strings around loss-making companies, leading to staggering layoffs across start-ups. However, early-stage funding remained buoyant in India, and the momentum is expected to continue in 2023 as well.  

Sharma says, “There is adequate capital (dry powder) available for early to early-growth companies, and good founders going after large addressable markets and building sustainable business models shouldn’t have a problem raising money.” 

Temasek-owned InnoVen Capital, which has offices in India, China, and Singapore, also expects exit activity to remain muted this year. “We expect capital markets to remain tough at least for the first 6-9 months of the year. Also, since there are few large funding rounds, opportunities for exits through secondaries will also be far and few between,” Sharma explained.

In India, the debt fund has also backed start-ups like Udaan, Dealshare, Cars24, Shiprocket, CureFit, Mensa Brands, Zetwerk, Slice, Ofbusiness and more. In 2022, it deployed $200 million across 40 start-ups across stages from Series A to unicorn rounds. It also saw 18 of its portfolio companies achieving unicorn status in FY22. 

Does InnoVen plan to be cautious in its investments this year? “We don’t have a top down target and will evaluate each opportunity from a risk-return standpoint,” Sharma says, adding, “We typically do 50+ transactions in a year, but numbers can change based on a mix of early to growth-stage deals," Sharma said.

And, what is the one advice the fund has for its portfolio companies to help them tide over 2023?

According to Sharma: “Focus on the fundamentals i.e. positive unit economics and sustainable growth while continuing to invest around innovation. Also, most companies are now focused on reducing cost and increasing their runway given the next fundraising could take longer than they planned.”

Also read: National Start-up Day: 5 Big trends to watch out for in 2023

Also read: National Start-up Day: Founders see consolidation, organic growth, sustainable biz models picking up in 2023