Wary investors walk away from large funding deals

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Wary investors walk away from large funding deals


The Good Glamm Group had been on a tear, closing a series of acquisitions and raising back-to-back funding rounds last year as it sold its content-to-commerce playbook to investors. The Mumbai-based company,
which is valued at $1.2 billion with big-ticket backers like Prosus (previously Napsers) and Warburg Pincus, now faces a reckoning as late-stage funding dries up and investors increasingly steer clear from loss-making tech firms.

Private equity fund TPG Growth walked away from Good Glamm’s fundraise just a few months ago, multiple people privy to the deal talks told ET. The financing would have valued the company at over $1.5 billion if the transaction took place, they added.

Other richly valued startups such as new-age insurance firm Acko, ecommerce platform Meesho, and business-to-business ecommerce firm Udaan, too, have struggled to rack up capital as investor sentiments reversed from being exuberant to being severely cautious, prizing profitability over sheer growth once again, amid ongoing macroeconomic headwinds.

“The market has changed so much that late-stage deals that started around six months ago will have only two outcomes – fall through or settle at much lower valuations than initial conversations,” said Abhay Pandey, managing partner at A91 Partners, a Mumbai-based investment firm which has backed the likes of Digit Insurance, Sugar Cosmetics, and Paper Boat, among others. “All drivers for rapid ‘deployment’ – FOMO (fear of missing out), very low cost of capital, and seemingly unlimited capital – disappeared and, so, investors chose to walk or negotiate better…,” he said.

The drop in funding rounds of $100 million and upwards has been conspicuous this year, having fallen to 18 in the second quarter of the current calendar year from 29 in the preceding quarter. By value, the funding rounds in June quarter racked up $3.6 billion, down from $6.7 billion in the quarter ended March, as per data by Venture Intelligence.

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A report from startup data tracking platform Tracxn on Monday said total funding raised by companies in August was $885 million, a drop of 20% from July.

Good Glamm, which runs brands like The Moms Co, ScoopWhoop, PopXo, and Baby Chakra, among many others, wanted to use the $150-200 million cash
to acquireRaymond group’s consumer brands including Park Avenue and Kamasutra, and buy out men’s grooming brand Ustraa. All these deals didn’t go through because the funding didn’t come through, people cited above said.

The company, however, said, “Since the acquisitions did not materialise due to valuation differences, the fundraise was called off.” The group “has no plans to raise funds, whether from internal or external investors”, it said in a statement. Its organic growth, investments in international expansions and other acquisitions continue as per its plan, it said.

Bengaluru-based Acko had signed a term sheet with PayU, owned by Prosus, but the South African conglomerate decided not to go ahead with the financing. Acko wanted the funds to enter the life insurance business. Its shareholders include General Atlantic, Multiples Private Equity, Amazon, Flipkart’s cofounder Binny Bansal, among others.

People privy with the matter said the
insurtech startup valued at $1.1billion is now likely to close an internal round led by General Atlantic at a slightly higher valuation compared to what was ascribed to it last year.

Acko and TPG did not offer a comment on ET’s query while a PayU spokesperson said, “It is the company’s policy to neither acknowledge nor deny its involvement in any merger, acquisition or divestiture activity, nor to comment on market rumours.”

What happened at Good Glamm?

With a valuation topping $1 billion, acquiring smaller startups that are unable to shore up capital independently is an oft-used strategy which Good Glamm adopted , like many other big tech companies have done in the past. Most of the acquisitions were stock-swap deals with minimal cash payouts.

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“They (Good Glamm Group) were in talks for a new funding round even as they closed some of the previous brand acquisitions, but discussions didn’t fructify at the valuation the company was seeking,” a person aware of the matter said.

Industry executives said Good Glamm paid a higher premium on its brand acquisitions. “Multiple brands they bought last year came to us and we passed all of them as they didn’t justify the price they were seeking,” a top executive at a Thrasio-style platform said. “Besides, content-to-commerce as a model is yet to reflect the potential it’s been associated with,” one of the senior executives mentioned above said.

Content-to-commerce basically means using content through blogs and social media to be able to sell to users. A founder of a brand-roll up firm said the ongoing year will be a key differentiator for aggregator platforms as they need to scale brands they have acquired amid a funding crunch.

In February,
ET wrote a deep-dive on The Good Glamm Group and what was powering its buying spree. At the time, the company claimed it was clocking $15 million in annual revenue run rate pre-pandemic and that
it is expected to reach $250 million on March 31, 2022.

For the year ended March 2021, the group’s parent firm recorded consolidated revenue from operations at over Rs 49 crore along with a net loss of Rs 43.6 crore, regulatory filings from the Registrar of Companies (RoC) showed. Its audited financials for financial year 2022 are yet to be available with the RoC.

PayU’s u-turn on Acko

This is not the first time the Prosus-owned online payments services provider PayU had engaged with Acko, people in the know said. It held discussions to fund the insurance startup last year, too. Acko was expecting a valuation of $2 billion and with the tech world seeing valuation in the public market sink, PayU did not close the deal, said a person briefed on the matter. “There is a rethink in the group about valuations, more so keeping in mind the way things have played out in the Billdesk transaction…,” the person said.

According to another person cited above, PayU’s year-long wait for clearance of its $4.7-billion Billdesk deal from the Indian antitrust regulator added to the uncertainty of backing regulated businesses here.
PayU finally receivedclearance from the Competition Commission of India (CCI) for the BillDesk deal on Monday. The Netherlands-based PayU has been acquisitive in India having bought out Citrus Pay, PaySense, and Wibmo to bolster its payments ecosystem.

Many unicorns (startups valued at $1 billion or more) have enough cash they raised in 2021, so they do not need to go to the market immediately, said a venture investor who did not want to be named. “They want to avoid lowering their valuation and would rather trim their cash burn,” he said. “ The big question, though, is, if the spends go down in a big way, then will the growth also get affected? This is a situation many large companies with steep valuation will face over the next 6-8 months as they try and extend their cash runway…,” he added.



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