At the height of the Covid-19 pandemic, venture capital investment in e-commerce and healthtech was a no-brainer – and India’s PharmEasy, valued at US$5.6 billion in 2021, provided an ideal opportunity for sovereign investors to jump on the bandwagon in a massive, fast-growing emerging market.
Just two years on, and the landscape has altered with reports in the Indian press that the online pharmacy startup has suffered a 90% markdown in its valuation as it launches a new US$300 million funding round. Singapore’s Temasek, Abu Dhabi’s ADQ and Canadian public pension fund CDPQ are all backers, alongside an array of other investors. Reports suggest they are continuing to back the business with the hope of cutting their losses in a sell-off, although past efforts to find at buyer at US$2 billion have reportedly been unsuccessful.
Temasek was an early investor in PharmEasy, leading a US$220 million funding round in November 2019 that valued the e-pharmacy at US$700 million. Having participated in the same round, in March 2021 Canada’s CDPQ bought a 2% stake in API Holdings, the owner of PharmEasy. ADQ followed in October 2021 with an investment of INR740 million (US$10 million) in a funding round that valued the business at US$5.6 billion, ahead of a planned IPO. The reported markdown would value the business, which has raised more than US$1.1 billion against equity and debt, at US$500-600 million.
The latest round is apparently to help pay off a US$285 million loan to Goldman Sachs, in relation to refinancing debt taken out when it bought a majority stake in healthtech firm Thyrocare worth more than US$600 million.
While it could become the first Indian unicorn to raise a funding round on a lower valuation, it may not be the last, posing a risk to the venture capital strategies of sovereign investors like Temasek. The Singaporean investor had a voracious appetite for venture capital and featured in almost every notable funding round for Indian startups during the pandemic, particularly in early stages as it sought to pivot its portfolio towards disruptive tech, such e-commerce, fintech, and biotech and life sciences.
Temasek’s VC investments included online insurance platform Policybazaar, restaurant delivery service Zomato, autos e-commerce platform CarTrade, edtech platforms Upgrad and Lido Learning, and electric scooter-maker Ola Electric. Some of its targets have continued to raise funds at ever higher values, but exits are drying up as IPOs are delayed and markets are more challenging.
Temasek had its fingers burnt with Indian ride-hailing app Ola, owned by Ani Technologies, with its stake diluted as it has opted out of funding rounds. The app’s value has fallen from over US$4 billion when Temasek invested US$225 million in Q3 2018 to US$3.5 billion in a valuation by the US index fund pioneer Vanguard, which cut the value of its shares by 51.6% at end-May this year. Its value is worth less than the US$3.9 billion it has raised, a far lower than Vanguard’s end-2021 value of US$7.3 billion.
Although one of the most active investors in India’s startup ecosystem, Temasek is not the only sovereign investor witnessing valuation markdowns. Earlier this year, Invesco slashed the value of its investment in food delivery app Swiggy, which is backed by QIA and Singapore’s GIC, by half the level last year, when it last invested when the startup was valued at US$10.7 billion. BlackRock also recently cut the valuation of Byju’s, which is India’s most valuable startup at US$22 billion and is backed by ADQ, QIA and Canada’s biggest public pension fund CPP Investments, by nearly half, to US$11.5 billion.
Yet, as Global SWF warned in July 2021, “there are still significant risks alongside the potential rewards, especially when engaged in venture capital investment in loss-making startups with big ticket valuations. The number and size of funding rounds have yielded massive capital injection, which has in some cases diluted stakes – and if private equity funding rounds or IPOs don’t match expectations, there is a danger that asset values come under attrition.”