Indian startup valuations must reflect present cost of capital: SoftBank’s Sumer Juneja
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“I think people got overcapitalised in 2021 so they have the comfort to wait it out. It has happened in the West, it has happened in Europe, it is going to come to India. If you do not realise what your true value is given the new cost of capital, it is a dangerous game to play,” Juneja added. His comments come as tech valuations have been hit hard globally across private and public markets.
Juneja was a part of a discussion at The ET Startup Awards in Bengaluru on November 19, on ‘The Great Reset: tracking the profitability versus growth conundrum amidst the tech winter’.
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“Covid gave us a glimpse of what tech adoption will look like in a fast-forward pace but I think when the world opened up we realised whether it be shopping, food-delivery or edtech, old habits die hard. Secondly, with very low interest rates, the cost of capital and the money floating around in the world, especially in growth equity, had been enormous and so the bar to invest, to do diligence, the pace of investment, had been very free. I do not blame entrepreneurs for taking advantage of that. If someone is giving you value why would you not take it? What is going to change now is you have to come back to pre-Covid times, and therefore valuations have to be reset,” he said.
Valuations have reset dramatically in the public markets in India and in the US, and that has to follow through on to the private markets, Juneja said.
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Companies that are able to fix their cash burn and quickly move in the right direction will be able to survive this period, he added. “Those who are not focussed on unit economics and not taking tough decisions will go through a very tough time,” he said.
SoftBank Vision Fund booked $9.75 billion in losses for the September quarter as the value of its portfolio continued to slide. SoftBank’s India portfolio firms like Paytm, PolicyBazaar and Delhivery, which went public over the past year, have been trading well below their issue prices.
When asked if India was ready for massive, $10-12 billion IPOs, and if the past year had also reset expectations among late-stage investors like SoftBank, Juneja said they were still bullish on the market.
“If you take the Indian stock market, it is about $3 trillion-odd in market cap. If tech gets to 20% to 30% of the total market cap in 10 years, it will have very big companies. I am not worried about the scale of the outcome, it is the timing you put on it,” he said.
He admitted that such outcomes will take longer, and that valuations have to reflect this. “Investors and founders have to realise how capital-efficient we want to make the company and how founders should be focussed on profitability like people here on the panel have shown,” he said, referring to the likes of Harsh Jain, cofounder of Dream Sports, and Nithin Kamath of Zerodha.
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