Happy Monday, y'all. We are opening the week with a story on how after an unprecedented year of frenetic fundraising, Indian startups are not only looking to go slow but also a spate of consolidation is in the pipeline. The M&A activity is only expected to get more intense as many companies won't be able to shore up funds and will become likely takeover targets.
Also in the letter: | War for tech talent moves to smaller cities |
| Virtual land and metaverse |
| IT companies cheer India-Australia trade pact |
Startup M&A deals climb up as funding starts to slow
This is Tarush in Bengaluru. Amid an adverse geopolitical environment and a crash in US technology stocks, another boom cycle is now giving way to
consolidation for Indian startups– akin to what happened in 2016-17. That, too, came on the back of 2014-15– the first hyperfunding phase for local startups. Consolidation follows any go-go period, cliched but true.
Why is it happening now? Indian startups racked up a
record $36 billion in equity capital at never-seen-before valuations in 2021 with
some 40 unicorns being minted. But as the wider technology sector recalibrates public and private valuations, the exuberance of the past year is rapidly waning.
More than half a dozen investment bankers, fund managers and founders, ET spoke to said that the potential acquisitions are largely to gain market share, add revenue streams, get access to technology, geography or talent, as the Covid-induced tailwinds fade. These deals are being triggered by the broader correction in the funding market as companies being acquired have mostly not been able to raise additional cash or were hit hard by the covid- pandemic.
Last week mobility startup Vogo was bought out in a share-swap deal by Chalo. In October last year, Chalo,
also acquired bus aggregator Shuttl. What does the data say? According to data from startup data platform, Tracxn, M&A activity peaked at 123 deals in the first quarter of 2022 compared to 70 deals in the first quarter of 2021.
Quote: " I do believe that assets or startups are available at cheaper prices in this market cycle…we will see more consolidation happening in the next 12 months for the larger ecosystem," said Vamsi Krishna, cofounder and CEO of edtech startup Vedantu.
What's the global Context: Two of the most prolific tech investors globally and in India, SoftBank and Tiger Global, have been hit severely by the public market crash hammering tech stocks. Masayoshi Son, founder of SoftBank, recently told the top leadership of the group
to go slow with technology investments due to the crash in its holdings, according to a report in Financial Times last week.
Bloomberg reported on April 3, that this year Tiger Global's $35 billion in funds focused on public companies,
had triggered a more than $10 billion hit to investors that include foundations, endowments and pension funds, as well as Tiger Global insiders.
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To battle talent crunch, IT firms shift to smaller cities
IT service providers such as Accenture Inc, Tech Mahindra, HCL Technologies and Mindtree, among others,
are expanding to tier II and tier III locations as they battle an unprecedented talent crunch.
The talent crunch: An increasing number of companies are tapping resources at these locations due to greater availability of talent, lower cost and attrition rates, analysts said. One of the many reasons is also that quite a few employees hailing from small towns do not want to return to big cities post-Covid-19, they added.
Context: The technology industry's talent crisis will spill over in 2022 as the demand-supply gap for good talent will persist amid rapid digital transformation of companies. The size of the digital talent gap is summed up by the fact that India will struggle to meet tech resource requirements for the next 3-4 years, according to industry data.
Read this story from January, to understand the seriousness of the talent problem.
Also Read: Tech Mahindra CEO expects talent crunch to continue for the next three quarters Who is doing what? Tech Mahindra has over the last two quarters ramped up hiring for its centres in Thiruvananthapuram, Vizag, Nagpur, Bhubaneswar, Chandigarh, Kolkata, Indore, Vijayawada and Coimbatore.
HCL Technologies launched campaigns like Stay Rooted and Come Back Home, etc.
Satellite centres? Companies are opening 'satellite centres' of 100-200-seater capacity in tier II and III locations to make employees meet once a week, analysts said.
Also Read: HCL Tech in 'reset' mode to drive home the message it is not business as usual HCL Tech, which has delivery centres in Lucknow, Madurai, and Vijayawada as part of its 'New Vistas' strategy, said the availability of abundant talent and better quality of life compared to other metro locations, were the main reasons to move into such locations.
Top colleges and universities are also influencing companies to pick these locations. For example, Mindtree launched its first development centre in Kolkata in March.
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ETtech Done Deals
■ Corporate expense management startup Enkash has
raised $20 million in a new round of funding, led by Ascent Capital along with Baring India Private Equity Partners and Singapore-based White Ventures.
■ Omnivore, an agritech venture capital firm, said it is
setting up a new $130 million (Rs 1000 crore) fund to be invested in early-stage technology-driven startups focussing on agriculture, food, climate change and rural development.
TWEET OF THE DAY
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IT companies laud move to end double taxation issue with Australia
The resolution of
India's double taxation issue with Australia as part of a larger trade deal has come as a shot in the arm for top IT services providers. India and Australia on Saturday signed an Economic Cooperation and Trade Agreement (ECTA) that seeks to ease norms for collaboration and talent sharing between the two nations.
Backstory: Under the provisions of the Double Taxation Avoidance Agreement, Australia had been charging tax under the head - 'royalty' - from Indian IT companies for offshore work done in India, though the same income was taxed in India as well. This had led to losses of almost $1 billion for the $220 billion IT industry over the last 10 years.
IT executives hail the move: Wipro chairman Rishad Premji took to Twitter to thank the Government of India and Nasscom for resolving the issue while Nasscom president Debjani Ghosh tweeted "Proud to see India and Australia lead the way!".
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Virtual land turns a real deal in Indian metaverse
Technology companies and real estate developers
expect an increase in interest among Indians for buying virtual property on the metaverse platform. Some companies have already planned virtual cities and an announcement by
singer Daler Mehndi regarding buying virtual land created a buzz among investors as well said, industry executives.
What up, Lepasa? Lepasa, which is creating virtual cities, plans to create 15-20 different cities over 416 sq km, with each city having a different theme.
Also Read: What is the metaverse and why is everyone talking about it? The land on the metaverse can also be used by brands to build experience centres and retail space to showcase products. People, instead of downloading different games, can play all the games on the metaverse. This will increase the value of virtual land, said Alok Joshi, the co-founder.
The quote: "Digital land trading and investing in virtual real estate is throbbing in numbers as millions of investors are open to the concept of the metaverse. Many real estate investors are seeing it as the next prominent step towards the adoption of digitisation in the real estate sector after virtual site tours, online bookings and chatbots," said Nayan Raheja, director, Raheja Developers.
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5G key to India edge data centre play: Dell
Dell Technologies expects the
rollout of 5G will to play an integral role in edge data centre investments in India.
Also Read: Data is fuel, 5G fabric for digital transformation: Michael Dell What is edge computing? Compute platforms at the Edge are likely to provide lightweight designs that can be successfully deployed despite spatial, environmental, power, and connectivity constraints. These designs are more secure and can support applications that demand insights in real-time, he added.
Quote: " This year, consumption-based models, edge computing, and multi-cloud environments will flourish. The 'do-anything-from-anywhere' economy requires a highly complex IT system capable of managing the exponential data that it generates," said Srinivas Rao, senior director of system engineering at Dell. He also added that Edge computing is one of the core components of the industrial Internet of Things. It
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Other Top Stories By Our Reporters
The state-side story of India's semiconductor ambitions: At a recent event in Chennai for the opening of a compressor factory,
Samsung executives got a nudge from Tamil Nadu's chief minister, MK Stalin. The message was loud and clear — make semiconductor chips in the state. On a fast-paced drive to draw investments, Stalin has proffered a similar pitch to Taiwan's Foxconn, which has partnered with Vedanta for a semiconductor plant, and the Tata Group to consider the space.
What's next for Digital India? Digital transformation is a key central theme of Budget 2022 with announcements ranging from infrastructure status to data centres to taking fibre to all panchayats
under the BharatNet programme. Introduction of a blockchain-based sovereign digital currency and setting up of 75 digital banking units, digitalisation of school education platforms and support for the Production Linked Incentive (PLI) scheme for large scale electronics manufacturing and IT hardware were also part of the overall focus.
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Global Picks We Are Reading
■ Fashion startup Shein said to raise funds at $100 billion value
(Bloomberg) ■ Amazon Workers' Union Victory Bolsters Revitalized Labor Movement
(The Wall Street Journal) ■ China accused of cyber-attacks on Ukraine before Russian invasion
(The Guardian)
Today's ETtech Morning Dispatch was curated by ETtech team. Graphics and illustrations by Rahul Awasthi. 
.jpg "Top M&A deals this year_Graphic_ETTECH (1)")
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