Startup investors are hunting outside unicorn zone
MUMBAI : Unicorns on deal street are finding little love, as investors chasing rising valuations hitch their wagons to smaller startups. Founders, investors and bankers noted greater interest in companies valued up to a billion dollars, while those above $2 billion find few takers. There were 318 deals in companies valued below $1 billion this year against just five in those valued over a billion, one valued over $2 billion and none for companies that are valued over $3 billion, data from Tracxn showed.
To be sure, these are primary investments, where investors bring in fresh funds, and not secondaries where one investor buys out another. Late-stage investors are drawn to high-quality companies with robust growth and a clear path to profit, said Pankaj Naik, managing director and co-head, digital and technology investment banking, Avendus Capital. "Their ability to pay valuation is highly linked to exit returns.
Hence, for companies that are valued more than $2 billion, the key question investors are asking is whether this company has the potential to become 3X (after dilutions) over the next 5-6 years. In that case, investors are happy to underwrite 5X returns in companies valued less than $500 million, and have marginally cushioned their return expectations," Naik said. Unicorns, or companies valued above a billion dollars, have been finding it difficult to raise capital in the last 12-18 months of the funding winter.
While many companies are close to exhausting capital, existing investors are ready to fund them further, albeit with more stringent terms. These transactions are mostly structured in a way where investors get to protect their investments and ride the upside, if any. Some of India's prominent unicorns
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