The domestic currency, on July 5, surpassed the 79 mark against the US dollar, dropping to an all-time low and ending the session at 79.37.
How does this sharp depreciation in the value of the rupee against the US dollar affect unicorns valued at close to $1 billion?
Startups are growing at a remarkable rate in India. In May, India achieved the figure of 100 unicorns. A unicorn is a privately-owned, venture capital-backed startup that has a valuation of $1 billion or more.
Vikram Gupta, founder and managing partner of IvyCap Ventures Advisors, said rupee depreciation affects valuations for all startups. "It takes longer for startups to reach a unicorn status,” Gupta said.
Explaining the impact, Gupta said: "A business in India having rupee revenues and a 10x on revenue as valuation would have reached a billion-dollar valuation at Rs 750 crore revenues with an exchange rate of 75. Now, they have to reach a revenue of close to Rs 800 crore to become a unicorn. In fact, there’s a high chance that even the multiple of 10x may have dropped to 6x or 7x and, hence, higher pressure on the business to achieve a billion-dollar valuation."
However, the overall growth of these startups will more than compensate for any such short-term impacts, he said. “India will likely generate 500 new unicorns in the next 10 years."
He explained that for enterprise businesses — where revenues are from global enterprises — rupee depreciation has a positive impact because in domestic books, if companies manage that, there will be a mild incremental revenue.
But for consumer business, there is zero impact because the bulk of the cost base (other than marketing costs) as well as revenue base is rupee denominated.
"I would look at it this way. Indian companies become marginally more attractive if someone really cares to dig that deep. The depreciation is inconsequential for invoking investors and portfolio companies alike. The bigger impact is for domestic funds looking to make exits and return capital to their global investors. There, suddenly there is a little extra runway to cover due to the exchange rate issue," Fafadia said.
K. Ganesh, founder of GrowthStory, also pointed out that the rupee depreciation can actually be a boon for some companies.
“Startups working outside India will benefit from this depreciation, as they will get more rupees for the same dollar,” he said. However, he underlined that the resultant inflation affects all kinds of startups, not just unicorns.
