Startup’s High Valuation Expectations May Be Hindering New Investments
ShareChat, a social media startup based in Bengaluru, India, is reportedly in the final stages of negotiations to secure around $50 million in new funding. However, this latest round of investment may see the company’s valuation drop significantly, with sources suggesting that it could be valued below $1.5 billion.
This drastic drop in valuation comes after ShareChat raised funds at a valuation of $4.9 billion just last year. The startup has been scrambling to find ways to grow its revenue and trim expenses amidst the protracted slowdown in the economy. Despite having over 400 million users, as claimed by the company, its revenue remained below $65 million for the financial year ending March.
Funding Challenges Amidst High Valuation Expectations
According to one of the potential investors who engaged with ShareChat this year, many have been deterred by the startup’s high valuation expectations relative to its currently low revenue. The investor revealed that discussions had taken place with several new investors, but most had chosen not to invest due to these concerns.
Existing Backers Continue to Support ShareChat
Despite these challenges, existing backers including Temasek and Tencent are among the investors in advanced stages of talks to invest in the new round. However, it is worth noting that Temasek has declined to comment on the matter, citing its policy of not discussing private investment deals.
Impact of TikTok Ban on ShareChat’s Business
The startup’s failed wager on the Indian short-video space amid the TikTok ban has undoubtedly played a significant role in its current funding challenges. Despite launching Moj, a short-video app, and acquiring MX TakaTak, another video app from Times Internet’s portfolio, for over $600 million, industry analysts have suggested that YouTube and Instagram filled the TikTok void as creators migrated to these larger platforms.
ShareChat’s Struggles to Grow Revenue
To combat this, ShareChat has attempted a series of initiatives, including a fantasy sports app and a live audio chat service. However, its revenue remains low, with the company planning to reduce its workforce by another 15% to 20%, or around 200-300 people, in the coming weeks.
Global Economic Slowdown Affecting Startups
This is not an isolated issue, as numerous investors are writing down the worth of their holdings in startups globally amid the protracted slowdown in economy. Prosus recently marked down the valuation of Byju’s to below $3 billion, down from $22 billion in early 2022.
Investors’ Concerns Over ShareChat’s Valuation
One potential investor expressed concerns over ShareChat’s high valuation expectations relative to its low revenue. The investor revealed that discussions had taken place with several new investors, but most had chosen not to invest due to these concerns.
Impact of Layoffs on ShareChat
ShareChat has already undergone two rounds of layoffs this year, and the latest round will see around 200 jobs being eliminated. This comes as the company attempts to reduce its expenses and grow revenue amidst a challenging economic climate.
Conclusion
The challenges faced by ShareChat are not unique to the startup alone. The protracted slowdown in economy has affected numerous startups globally, with investors writing down the worth of their holdings due to low valuations. As the startup continues to navigate these challenges, it remains to be seen whether it can regain its footing and achieve growth amidst a difficult economic climate.
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