Recent issues, especially those dealing with corporate governance in Indian businesses, will impact investor sentiments in the start-up segment, a report by market research platform, Tracxn has revealed. The report stated: “The recent news about financial irregularities in GoMechanic, a car servicing start-up and the crash of the Adani Group’s stock value following the accusations of financial irregularities can impact investor confidence in the Indian economy and harm the reputation of Indian businesses.”
The funding scenario in the Indian start-up ecosystem has hit choppy waters. According to estimates, funding in late-stage start-ups has gone down by almost 50 per cent as investors continue to sit on $590 billion worth of dry powder across the globe. Dry powder refers to the amount of committed but unallocated capital a firm has on hand. It is an unspent cash reserve that is waiting to be invested.
Tracxn, in the report, also noted that the month-on-month funding in Indian start-ups has seen a minor uptick of 3 per cent from $935 million in December 2022 to $962 million in January 2023 as the number of funding rounds continued to drop by 22 per cent during the same period.
GoMechanic hit headlines in January 2023 after the automobile after-sales start-up announced that it would layoff over 70 per cent of its workforce. Moreover, the co-founder and CEO of the company, Amit Bhasin even went on to admit that their (the co-founders’) passion to survive the challenges of this sector got the better of them. He admitted to making errors in financial reporting.
Just when the ecosystem was trying to grapple with developments at GoMechanic, US-based short seller Hindenburg Research released an explosive report on billionaire Gautam Adani’s Adani Group, alleging that it has indulged in stock manipulation, accounting frauds and round tripping of funds through shell companies. The report created a havoc in the stock markets, with the shares of Adani group of companies plunging by as much as 70 per cent.
Business Today spoke to a couple of investors. Not asking to be named, one of the venture capitalists told BT that in the short-term, foreign investors will definitely “start asking more questions,” although the VC was non-committal about commenting on the long-term impact of these developments. Another VC pointed out that Adani and GoMechanic are two very different cases. “One [GoMechanic] is an example of a compliance issue, the other one [Adani-Hindenburg] is more political in nature.”
The first investor, however, said, “What will happen is that if any foreign investor is planning to make investments in Indian companies, he will pause and ask more questions and invest only when all his doubts are cleared.”
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