Private equity fund TPG Growth withdrew from the Good Glamm fundraiser just months ago, several people privy to the deal talks told ET. The financing would have valued the company at over $1.5 billion had the transaction gone ahead, they added.
Other well-regarded startups such as new-age insurance company Acko, e-commerce platform Meesho and business-to-business e-commerce company Udaan have also struggled to raise capital as investor sentiment turned from ebullient to traded very cautiously and profitability again overestimated sheer growth amid ongoing macro headwinds.
“The market has changed so much that late-stage deals that started about six months ago will only have two outcomes — fail or settle for much lower valuations than the original talks,” said Abhay Pandey, managing partner at A91 Partners, a Mumbai based company. Investment firm that has backed Digi Insurance, Sugar Cosmetics, and Paper Boat, among others. “All the drivers for rapid ‘adoption’ – FOMO (fear of missing out), very low cost of capital and seemingly unlimited capital – disappeared, so investors decided it was better to walk or negotiate…” he said.
The decline in funding rounds of $100 million and above was notable this year, after they fell to 18 in the second quarter of the current calendar year from 29 in the previous quarter. By value, funding rounds raised $3.6 billion for the June quarter, compared to $6.7 billion for the March quarter, according to data from Venture Intelligence.
According to a Monday report by startup data-tracking platform Tracxn, total funding raised by companies in August was $885 million, down 20% from July.
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Good Glamm, which operates brands including The Moms Co, ScoopWhoop, PopXo and Baby Chakra, among others, wanted to use the $150 million to $200 million in cash to acquire the Raymond Group’s consumer brands, such as Park Avenue and Kamasutra, and the brand to buy up Ustraa for men’s grooming. All of those deals fell through because the funding didn’t materialize, the people cited above said.
However, the company said, “Since the acquisitions did not materialize due to valuation differences, the fundraising was called off.” The group “has no plans to raise funds, either from internal or external investors,” it said in a statement. Organic growth, investments in international expansions and other acquisitions will continue as planned, it said.
Bengaluru-based Acko had signed a term sheet with PayU, which Prosus owns, but the South African conglomerate decided not to proceed with the funding. Acko wanted the funds to go into the life insurance business. Shareholders include General Atlantic, Multiples Private Equity, Amazon and Flipkart co-founder Binny Bansal, among others.
People familiar with the matter said the $1.1 billion insurtech startup is now likely to complete an internal round led by General Atlantic at a slightly higher valuation than last year.
Acko and TPG did not comment on ET’s request, while a PayU spokesperson said, “It is the company’s policy not to acknowledge or deny its involvement in any merger, acquisition or divestment, or to comment on market rumors.”
What happened at Good Glamm?
Valued in excess of $1 billion, acquiring smaller startups that are unable to sustain capital on their own is a common strategy that Good Glamm employs, as have many other big tech companies in the past. Most of the acquisitions were stock swaps with minimal cash payments.
Good Glamms Financing, Acquisitions and Top Shareholders
“They (Good Glamm Group) have been in talks for a new round of funding despite completing some of the previous brand acquisitions, but discussions on the valuation the company was seeking have not yielded any results,” said a person familiar with the matter.
Industry leaders said Good Glamm paid a higher premium for its brand acquisitions. “Several brands they bought last year came to us and we passed them all as they didn’t justify the price we were aiming for,” said a top exec of a Thrasio-style platform. “Furthermore, the content-to-commerce model as a model has yet to reflect the potential attributed to it,” said one of the senior executives mentioned above.
Content-to-commerce basically means using content via blogs and social media to be able to sell it to users. A founder of a brand roll-up firm said the year-to-date will be a key differentiator for aggregator platforms as they need to scale brands they’ve acquired amid a funding crisis.
In February, ET wrote a lengthy report on The Good Glamm Group and the reasons behind their spending spree. At the time, the company claimed it had annual sales of $15 million before the pandemic and was expected to hit $250 million on March 31, 2022.
(From left) Darpan Sanghvi, Founder and CEO of Good Glamm Group, and co-founders Priyanka Gill and Naiyya Saggi.
For the year ended March 2021, the group’s parent company recorded consolidated operating income of over Rs 49 crore along with a net loss of Rs 43.6 crore, regulatory filings from the Registrar of Companies (RoC) showed. The audited financial reports for the financial year 2022 are still available from the RoC.
PayU’s U-turn at Acko
This isn’t the first time Prosus-owned online payments processor PayU has partnered with Acko, insiders said. Discussions on financing the insurance start-up were also held last year. Acko was expecting a valuation of $2 billion, and as the tech world saw the valuation drop in the public market, PayU didn’t complete the deal, said a person briefed on the matter. “There’s a rethinking of valuations within the group, especially given how things played out in the Billdesk transaction…” the person said.
According to another person cited above, PayU’s years of waiting for the Indian Antitrust Authority to clear its $4.7 billion Billdesk deal has added to uncertainty about supporting regulated companies here. PayU finally received the approval of the Competition Commission of India (CCI) for the BillDesk deal on Monday. Netherlands-based PayU has been acquiring in India after buying Citrus Pay, PaySense and Wibmo to strengthen its payments ecosystem.
Many unicorns (startups worth $1 billion or more) have enough money raised in 2021 that they don’t need to go to market immediately, said a venture investor who asked not to be named. “They want to avoid lowering their valuation and would rather reduce their cash burn,” he said. “But the big question is, if spending falls sharply, will growth be affected as well? This is a situation that many large, highly valued companies will face over the next 6-8 months as they attempt to extend their cash runway…” he added.