India will create just four to five unicorns next year as digital companies continue to struggle to raise money from investors in a gloomy venture funding climate, according to Avendus Capital.
(Bloomberg) — India will create just four to five unicorns next year as digital companies continue to struggle to raise money from investors in a gloomy venture funding climate, according to Avendus Capital.
“My sense is that this year and next year is going to be cautiously optimistic where people will continue to invest and the valuations are not going to jump like 2x or a 3X or 50% in two months,” Pankaj Naik, managing director and co-head of digital and technology investment banking at the firm, said in an interview with Bloomberg Television. “So the rise of unicorns will be slightly lower.”
Indian firms are not the only ones finding funding challenging as startup momentum is sputtering worldwide. Venture funding declined by about 72% in the first half of 2023 from a year earlier, according to data from Tracxn Technologies Ltd. No new unicorns were created in the country in January to June, compared with 19 unicorns minted during the year ago period, the data showed.
KKR-backed Avendus expects mergers and acquisitions among digital firms to pick up if valuation gaps between founders and investors narrow and companies will continue to acquire for skill sets or extension of their abilities, Naik said.
M&A deals are also hindered by buyers offering to acquire companies dirt cheap if they find any weakness in selling stakeholders, he said. “So the only M&As that are happening are largely distressed situations at this point of time,” he said.
–With assistance from Rishaad Salamat, Yvonne Man and Anand Menon.
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