When you’re upto your neck in hot water, sing like a kettle. But what can startups do to boost the confidence of investors when the hot water has singed their skins off?
Macbeth, startup-CEO from the Shakespearean era was doing just fine until he met three bears on the road. They hailed him as the Fallen One.
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He took no heed and went on messing up his capital structure in a bull-market running purely on the steam of hubris—pride and greed. Hence, when the fall did come, the bears were sitting right on his head. The term is Bear-Stearned.
A market-crash happening at any point in history and at any place has propagated either a ripple effect throughout global markets or has atleast sent after-shocks. The story is uncannily same everywhere. The characters could run the gamut of Bear Stearns to Northern Rock. Big fish are floundering and the cash-crunch net is such that the holes might not allow even smaller fish to escape. Investor's are not looking to fish in such troubled waters. Or are they?
Market turmoil and investment deals
The market crash has had unforeseen consequences on the funding opportunities available for startups at various stages. The ilk of investors affected directly from the dipping stock prices are angels, high networth individuals (HNIs) and those investing in equity funds. The investment sentiment is varied even across these categories. Angels and HNIs who earned their money from the exploding real estate and infrastructure sectors are now stuck with stocks that are trading at or below par. Whereas a few angels are adamantly biding the wee until the Sensex touches stability around 18,000-19,000, a few are seeking fresh grounds to invest. These fresh grounds are not new stocks at the moment but startups running on sturdy business models and involving lesser risks.
“What is happening in the market is a temporary phase. Angels are still looking for sturdy startups to invest in. A few may be somewhat cautious as to investing in new ideas, but as a whole, angel investing is green in the country,” says Pravin Gandhi of Seedfund, a veteran angel investor of the country.
| DARE/statistics |
| PE and M&As |
| As ascertained by a recent study, this year January alone saw 56 M&A deals and 60 PE deals, worth $3.01 billion and $2.05 billion, respectively; that is, 116 deals worth $5 billion for a single month. The last time this happened was exactly a year ago when a total of 101 deals were concluded in the same month. Analysts claim that the deal rate averaged out to around one a day. A few large PE deals involving over $100 million were those of Edelweiss Capital, Mahindra & Mahindra Financial Services, Ballarpur Paper Holdings, Jaiprakash Power Ventures, Akruti City, Peninsula Land and Vatika. The 3% equity sale of Reliance Entertainment to George Soros, the global investor, for $100 million falls within the same spectrum, except for the reported $5 billion that Soros valued it at! |
Private equity funds are getting fatigued. PE deals are still happening, but not on the scale that they used to during the market’s prime. This is partly because most PE firms in India are based in the US, where they acquire their funds from. In the event of the US investment system breaking down, funds have started to dry up. HNIs, who have been known to invest in such funds, have also stopped lending to them in keeping with the market sentiment. For the moment, there are no more fresh pastures for them.
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written by Sandeep Naidu, December 20, 2008
written by Yadav Chandna, October 15, 2008
Yadav Chandna
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