India’s celebrated startups like Swiggy, Ola, Byju’s and Oyo, which have been receiving flak for a long time due to their hefty valuation disproportionate to their revenues, have now been put on correction mode by their investors.

Invesco, which led food aggregator Swiggy’s last round of funding at a $10.7 billion valuation in January 2022, nearly halved its valuation to $5.5 billion in April 2023, according to Entracker which accessed Invesco's US Securities and Exchange Commission (SEC) filings. Edtech major Byju’s also has been under the lens for quite some time due to its steep marketing expenses despite mounting losses. BlackRock recently slashed the company’s valuation to almost half, $11.5 billion from $22 billion. Similarly, US investor Janus Henderson also cuts online pharma company PharmEasy valuation by half to $2.8 billion. The SoftBank Group Corp has slashed the valuation of Oyo Hotels on its books by more than 20% taking it to around $6.5 billion. Vanguard has reduced Ola's valuation by 35% to $4.8 billion from its peak value $7.4 billion.

The series of valuation fiasco during the last two months doesn’t only raise a big question mark over the valuation hype among the tech startups sector, but also rings an alarm bell in the advertising and media industry which has been waiting for good days this fiscal after facing tough market conditions in FY 23.  Media and advertising industry leaders wonder whether hefty valuations of startups were sustainable and if the startups can maintain the same momentum as they did during the pandemic lockdown.

Byju’s declined to comment. Swiggy, Pharmeasy and Oyo’s comments were awaited till the time of writing these lines.

Advertising spend to be impacted?

Following the steep devaluation, industry experts sense an upcoming decline in the startups’ ad budget.

It's noteworthy that these startups have been pumping huge money into marketing till last year, lifting India’s advertising spend to a great extent. Some of them were sponsors of the Indian Premier League as well.

PharmEasy, for instance, spent Rs 494 crore on advertising and promotional activities during FY22, up from Rs 134 crore in FY21, according to the ROC filings. Bundle technology, the parent company of Swiggy, spent Rs 1,840 crore in FY22, almost a four-fold increase from Rs 570 crore in FY21. Marketing and promotion expenses of Oravel Stays, the parent company of Oyo, increased by 19.3% YoY from Rs 336 crore in H1FY22 to Rs 400 crore in H1FY23.

These firms may be forced to curtail their marketing budgets due to investor’s pressure, media planners say.

“During the past few years, we went through a phase of irrational exuberance. Now we are seeing some reality kick in. There will certainly be a drop in ad spends. Focus will be more of performance marketing rather than brand marketing,” Hareesh Tibrewala, joint CEO, Mirum India opines.

Anil Solanki, Senior Director - Media Lead at Dentsu X, tells e4m, “From 2019 to 2022, Indian startups raised an impressive $59.3 billion in funding, with 2021 being a standout year with $35.2 billion and the emergence of 34 unicorn startups. However, a combination of global and domestic factors have led to a decline in funding opportunities, creating a dry spell in terms of investment in Indian companies.”

“Nevertheless, the Indian economy remains a bright spot in the midst of global economic turmoil which will attract the present & new investors. From a media and advertising perspective, this setback can be seen as a temporary obstacle before a significant leap forward,” Solanki adds.

The current story that’s going around on the devaluation of start up’s like Swiggy, Ola, Byju’s and OYO is certainly worrisome for media and advertising, says Manas Lahiri, COO, Famous Innovations.

Lahiri explains, “We often take these categories as considerable growth partners for any agency revenue planning and a devaluation is certainly not an optimistic story from a spend perspective. But I would like to look at this from an opportunity perspective. If and when cost rationalization happens in these sectors a lot of  realignment will happen such as how to handle creative agency models and doing away from creating and maintaining their own agency teams within these companies ( where we have been losing a lot of talent already).”

These rationalizations will lead to rethinking of giving back the comms responsibilities to the agencies at an optimum cost and getting away from that fixed cost. And that will lead to a making up for the revenues that agencies might have lost to client creative teams. The logistics of it might change, new cost agreements might be a challenge for the agency partners but making up for the business loss is the biggest opportunity if that happens, Lahiri noted.

Lloyd Mathias, Business Strategist and Independent Director, believes marketing spends might see a hit from these revised valuations. “The moment investors push you hard to get your business model right, people are bound to look at all their expenses, and one of the biggest expenditures is marketing. So, they will relook at that.”

Startups may also have to look at other aspects of cost like people costs, new investments, acquisitions, and marketing will definitely be the first thing under the hammer and will directly impact marketing, Mathias noted.

Dr Sandeep Goyal, MD of Rediffusion, has a different point of view though. He feels, “This is a cyclical business. When valuations and funding are on the upswing, obviously brand building and advertising investments increase significantly. However, cut in valuation cannot now stop these brands from advertising as businesses need constant investment in a going concern. Some cuts, some pull backs maybe, but the larger picture would remain the same.”

(With inputs from Nilanjana Basu)