This Silicon Valley-based VC tells us why falling Indian startup stocks is a boon in disguise, for him

• Nazar Yasin of Rise Capital believes that the huge market correction in startup valuations, a global phenomenon, is actually a boon in disguise.
• This correction is having a ‘trickle-down’ effect which is working its way through the startup ecosystem.
• The pandemic brought home a large section of Indian tech talent which was earlier based out of the US.
• The Indian small and medium enterprise (SME) ecosystem which is on the path to digitization and hence acquiring new tools and technology – is the sweet spot, says Yasin.

Months before the massive Black Friday selloff on May 5, listed stocks of former startups like Paytm, Zomato, Policybazaar and Nykaa have been losing steam. That could have made startup investors jittery but not Nazar Yasin, the founder and managing director of San Francisco based VC, Rise Capital. It invested in Latin American and African companies, along with Indian startups like the apparel brand Hopscotch; investment app TradeX and fintech company SaveIn.

The trickle-down effect

Yasin believes that the huge market correction in startup valuations, a global phenomenon, is actually a boon in disguise. “In 2021, valuations went to unsustainable levels. We saw some publicly traded internet software companies trade at PEG (price to earnings to growth) ratio of 4-5X implying that they would grow at 10-20% rate forever. That can never happen,” Yasir told Business Insider India, in an interview.

This correction is having a ‘trickle-down’ effect which is working its way through the startup ecosystem. As publicly traded startup stocks crashed, those which are at the pre-IPO stage were hit next. “Those who were earlier valuing them at five times the revenues now go for two times. And, mid-stage investors now say – if late stage investors are lowering their valuations to $1 billion, we should lower it from $750 million earlier to $500 million,” explains Yasin.

By the time this effect reaches early stage valuations, which is Rise Capital’s turf, it falls from $400-500 million earlier to $100-200 million. While this domino effect is good news, this is not the ‘only’ reason the VC thinks India makes for a great market. There has been a tectonic shift in the location of the world’s best tech talent as well.

Reversing the brain drain

The Indian tech talent pool has improved in the last two years. The pandemic brought home a large section of Indian tech talent which was earlier based out of the US. The altered immigration rules have also made it tougher for Indians to study, stay – which also includes probable startup founders.

“All the startups that could have been founded in the US could now be in India,” said Yasin who is looking at taking Series B bets with a deal size of $10,000 to $10 million. Like its bets in other emerging economies like cloud kitchen Kitopi from Dubai and fintech Kueski from Mexico, Indian tech companies too have it in them to make it global.

Within India too, the dormant market for digitization provides a great opportunity, according to Rise Capital. It has potential in areas like SaaS, B2B, crypto, healthtech and more. But it’s the ecosystem of small and medium sized enterprises (SME), which are on the path to digitization and acquiring new tools and technology – is the sweet spot, says Yasin.

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