Without clarity on when these revenues and growth patterns will revive, risk premiums are expected to go up significantly, warranting a re-evaluation of valuation multiples, the report said
The risk premium for investing in Indian startups has gone up significantly due to covid-19-led disruptions, and the valuation of ongoing deals may have taken a considerable hit, said a report by management consultant Duff and Phelps.
“With covid-19 causing a severe disruption in business operations, many Indian businesses have seen a major portion of their revenue streams erode rapidly. Without clarity on when these revenues and growth patterns will revive, risk premiums are expected to go up significantly, warranting a re-evaluation of valuation multiples," the report said.
For the next three quarters, there might be down-rounds for various consumer internet startups, particularly in travel, tourism, entertainment and offline, or hyperlocal, merchandising, as individuals continue to remain indoors.
The covid-19 pandemic has also impacted deal flow. The decline in funding activity can be attributed to the down-round protection rights, which investors might be executing, making it harder for startups to negotiate deals. A down-round refers to financing, wherein the valuation is lower than the previous round.
The report said venture capital (VC) and private equity (PE) funds are focusing on helping their portfolio companies with additional equity infusion and bridge financing, to help the management teams to firefight on multiple fronts.