A couple of years ago, there were worries that India wasn’t seeing too many exits of startups through mergers & acquisitions (M&As) or IPOs. But in the first six months of 2016, India saw the third highest tech startup exits, according to US startup database CB Insights.
The US led the list with 857 M&A/IPOs in the first six months of 2016, followed by the UK with 135. Indian startups witnessed 86 M&As, down from 96 in the second half of 2015. China, with just 15 M&As, fell to 11th position from 7th in the second half of 2015.
Venkatesh Peddi, Executive Director at VC firm IDG Ventures, sees this as a healthy sign of the ecosystem maturing.
“While this data only indicates the number of exits, the size of the exits still remains low. But it’s just a matter of time and as the market evolves, we should be witnessing bigger transactions. We are witnessing it on the ground as well. When I started a few years ago, companies weren’t looking at acquisitions as a medium to grow but now it’s changing”, he said.
The report said there were over 1,590 exits globally in the first half of 2016, a 17% decline from the same period last year. However, the number of exits in the June quarter, at 820, was a 6% increase over the March quarter. After a lull, the second quarter saw some traction with 16 tech IPOs, including that of US-based personalized healthcare provider Nanthealth and cloud communications company Twilio.
Karthik Reddy, Managing Partner at VC firm Blume Ventures, said the higher number of acquisitions is good for the ecosystem, but cautioned that the ventures being acquired are not necessarily quality startups. “We are weeding out capital-inefficient businesses or inefficient team/entrepreneurs sooner than later”, he said, adding that the value of the acquisitions tends to be low, and will continue to be so for the next 12 months, due to the weak balance sheets of the bigger startups that are making the acquisitions.
“The balance sheets are weak because they are funded by capital, not cash flow. Whenever they are funded by capital, they tend to acquire cheap. But it will stop eventually. The good startups will find a way to survive, and they won’t sell for cheap”, he said.
Over half (53%) of the exits were at valuations less than $50 million, and 26% of the exits was between $50 million and $200 million, according to CB Insights. Only 4% of exits was at over a $1 billion — US-based personalized healthcare company Nanthealth topped the tech exit charts with a valuation of $1.7 billion.
Reddy said the funding slowdown is another reason why exits are happening at lower valuations. “Since there are no new investors coming in, we see investors squeezing the portfolio companies to get acquired rather than die. It’s better to get the best value possible with some combination of cash and stock”, he said.
Interestingly, 72% of companies that exited didn’t raise VC or PE money prior to exit. Given the large number of consumer internet companies, every country in the top 5 had exits in the space. In India, 28% of the overall exits were of mobile ventures, the highest among the top 5 countries.
Source: Times of India
Image Courtesy: The Hindu Business Line
