The trend of down rounds in the startup ecosystem is persisting and expanding. Nearly 20% of the major venture capital deals in 2023 and up to April this year involved significant reductions in valuations. This marks the highest proportion since 2015, according to data from Pitchbook.
Before 2023, the highest incidence of down rounds occurred in 2017, when 17% of VC deals were executed with valuation cuts following the exuberance in funding observed during 2015-16. Analysts anticipate this trend to continue throughout the year, spelling challenging times for startups ranging from large unicorns to growth and early-stage ventures.
Deepak Gupta, General Partner at WEH Ventures, explains, “Down rounds may continue for some time as the inflated valuations from 2020-21 have yet to align with company performance, and growth stage deals remain subdued compared to historical levels.” Gupta suggests that many founders who postponed fundraising in 2023 will now need to seek funding, potentially leading to down rounds.
Of the 20 venture capital deals this year, primarily focused on growth and late-stage rounds, four have occurred at reduced valuations. In 2022, out of the 84 deals in growth and late-stage funding, 17 were down rounds.
Recent funding rounds illustrate this trend. PharmEasy, an online pharmacy retailer, secured $216 million in a deal led by Ranjan Pai’s Manipal Education and Medical Group, valuing the company at $710 million — significantly lower than its $5.6 billion valuation in 2021. Similarly, Udaan raised $340 million in December 2023 at a valuation of approximately $1.8 billion, down from its peak of $3.2 billion in 2021.
Indian startups witnessed a funding slowdown in the first quarter of this year, raising $1.9 billion compared to $2.2 billion in Q4 2023. This downturn followed consecutive growth quarters in 2023, with total funding amounting to $8.4 billion for the year, significantly lower than the $25 billion raised in 2022 and the lowest in the past five years, as per Tracxn data.