Investment curbs could hurt start-up valuations
Indian start-up valuations could be significantly hit by the government curbs on FDI from neighbouring countries, which could dry up Chinese investments into Indian technology and e-commerce companies that have seen large investment from Chinese investors.
Merchant banking sources say several tech and e-commerce firms are looking at alternative sources of funding, as investment from China is set to come down further.
Start-ups like Paytm, Snapdeal, Swiggy, Big Basket, Ola and Byju have large investments from Chinese companies. Zomato and Policy Bazar also have exposure from Chinese investors.
China's internet giant Alibaba Group and its affiliate Ant Financial, Tencent Holdings and Fosun RZ Capital have poured in millions of dollars into a large number of Indian firms, including several unicorns.
Many fear that with Chinese funds drying up unicorns like Zomato, Paytm, BigBasket, PolicyBazaar, Udaan and Oyo may struggle to get next round of most of these cash guzzlers.
"In today's uncertain world, when investor options are limited, taking out a potential large investing ecosystem from the picture would certainly have significant ramifications for the start-up industry. Reduced competition from the Chinese investor community is also bound to affect startup valuations," says Samir Sheth, partner and head-deal advisory services, BDO India.
"The change in regulations in April stipulates that any country which shares a land border with India can invest only with government approval. While the change is wellintended to protect opportunistic takeovers of Indian companies by Chinese companies/ investors at very low valuations funding as firms are due to the ongoing pandemic, it could potentially have some unintended collateral damage for start-ups--slowdown in fund raise affecting their growth rates and in some cases survival," Sheth further said.
If the approval process becomes a roadblock for Chinese investments, then start-ups will need to look at other options. The sentiment against China across the globe could result in global investors pulling money out of China.
According to experts, start-ups will have to use this view against China to attract more capital into the country. Apart from the traditional VC/tech investments and investor hubs of Japan, US, Canada and Europe, startups also need to look at sovereign funds, large Indian family offices and a new set of emerging serial entrepreneur investors.
"Offshore capital is paramount for India's start-up ecosystem…we hope the government issues detailed guidelines in terms of timelines and procedures for seeking approval or creates certain exceptions for startups," said Roma Priya, founder, Burgeon Law.
Work from home may remain part of the norm for many in India's financial industry beyond the end of the world's biggest lockdown. The reason: elimination of lengthy commutes in the past three months has boosted employee productivity.
Take Jefferies' India team for example. On average, its 60 members have managed to save over an hour every day on commute and 70 per cent of them have seen higher productivity, according to a note from the brokerage, drawing on a survey of its staff.
As banks and asset managers around the world try to figure out how they'll manage their offices after the coronavirus pandemic, many in Mumbai see the opportunity for permanent change in how they work. The average commute time on the city's major routes is over an hour, more than twice the averages of Singapore, Hong Kong and New York, according to a study by the IDFC Institute, a policy think-tank.
Neil Parikh, chief executive officer of Parag Parikh Financial Advisory Services, like many others is finding the experience better than expected—so much so that he's reconsidering plans of adding to the money manager's offices in India's top cities. He plans to equip new hires with laptops and high-speed Internet connections instead.
"Now there's no stigma around working from home," he said. "I can see some from my research team being much more productive. Working from home saves three-to-four hours everyday in travel time for some people."
Reliance Securities Ltd has shelved plans to shift to a new premise. The firm will have half its staff continue to work from home as it implements a rotational programme to comply with social distancing norms, according to chief human resource officer Meenaa Sharma.