A unicorn company's valuation has been slashed by 20 billion yuan.

Author: Wang Lu

Reported by: PEdaily, the investment industry

The beautiful bubble is being slowly burst.

This week, the well-known social media unicorn ShareChat announced a new round of financing of 49 million US dollars. However, what surprised the venture capital circle is that the company's valuation has dropped from nearly 5 billion US dollars to 2 billion US dollars.

In other words, this star unicorn voluntarily reduced its valuation by 3 billion US dollars, equivalent to about 20 billion RMB, in order to obtain financing.

There was a time when ShareChat was highly sought after by venture capitalists, raising funds for more than a dozen rounds in just a few years, with the backing of many well-known venture capital institutions. Especially after the H-round financing in 2022, ShareChat's valuation reached about 5 billion US dollars. However, just two years later, ShareChat failed to secure further funding, and lacking the ability to generate profits, the valuation myth eventually shattered.

This current star unicorn is just a microcosm: the frenzy of high valuations with no one willing to take over. In 2024, the shadow of being unable to secure the next round of funding looms over the heads of most unicorns.

Former 35 billion unicorn voluntarily reduced its valuation

ShareChat, the former super unicorn in the venture capital circle.

Let's go back to 2012, when 21-year-old Ankush Sachdeva, majoring in computer science at the Indian Institute of Technology, met his classmates Farid Ahsan and Bhanu Pratap Singh at a tech competition.

Subsequently, the three of them developed 13 internet products, during which Ankush discovered a new territory—there were thousands of users who spoke Hindi in just one popular post on Facebook, and they left their phone numbers despite privacy concerns, seeking to join a group for communication.

"This is a group that doesn't speak English but is very hungry for content, to the extent that they have to go through a lot of trouble to get information," Ankush suddenly realized that there was such a large untapped population in his country, "The world is not just English."

The three of them quickly agreed, and in 2015, ShareChat was born, becoming India's first local language social media platform, once compared to the Indian version of WeChat, while also featuring user-generated content such as text and video. With dialect content and simple interface operation, this app quickly penetrated the untapped market of the Indian internet. In October 2016, ShareChat had only about 100,000 daily active users, and two years later, this number reached 7.5 million.

There was also an episode—In June 2020, the Indian government completely banned TikTok. On the very next day, ShareChat's short video platform Moj was launched, quickly accumulating millions of users in a short period of time.

Venture capital institutions began lining up to invest.

Public information shows that in January 2018, Xiaomi Group led the B-round financing of ShareChat, with Shunwei Capital participating. Subsequently, Xiaomi, SAIF Partners, and Trustbridge Partners successively added multiple rounds of funding.

What really made it known was in 2021, when ShareChat received 502 million US dollars in E-round financing from Tiger Global Management, Lightspeed Global, and other top venture capital firms, and its valuation rose to 2.1 billion US dollars, becoming the first media platform unicorn in India. In just that year, ShareChat completed three rounds of financing, raising a total of 913 million US dollars.

Since its establishment, ShareChat has undergone at least 10 rounds of financing, with a total financing of about 1.4 billion US dollars (about 10 billion RMB). After the H-round financing in 2022, ShareChat's valuation reached 5 billion US dollars (about 35.4 billion RMB), making it one of the highest valued companies in the history of the Indian internet.

But good luck does not always last. In the 2022 fiscal year, ShareChat's losses doubled to 29.89 billion rupees (about 2.5 billion RMB). In the 2023 fiscal year, the losses continued to soar to 51.44 billion rupees (about 4.5 billion RMB).

In other words, after nearly 10 years of establishment, ShareChat is still a company that has not figured out how to make money.

After the glory of a 5 billion US dollar valuation, ShareChat has been unable to secure the next round of funding. Last year, the company laid off about 800 employees; co-founders Bhanu Pratap Singh, Farid Ahsan, and several senior executives subsequently resigned. As a result, investor confidence gradually collapsed, leading to the scene of the initial valuation reduction.

A reduction of 20 billion in valuation may perhaps bring a chance to turn the situation around. ShareChat's co-founder and CEO Ankush stated that the company has changed its mindset, shifting from a growth framework that spares no cost to establishing a sustainable business model, aiming to achieve profitability within a year.

The dilemma of unicorns: Unable to secure the next round of funding

The harsh reality once again proves that unicorns are sometimes just fairy tales and are not truly worth 10 billion US dollars. ShareChat's experience is not an isolated case.

In February of this year, the investment firm Tribe Capital, which invested in the electronic payment unicorn Bolt, planned to sell its equity back to Bolt at a valuation of 300 million US dollars. It is worth noting that in the E-round financing two years ago, Bolt was valued at 11 billion US dollars, which means the valuation has dropped by more than 100 billion US dollars, a staggering 97% decrease.

Not all unicorns can survive to the end of the rainbow. Some outstanding companies like Airbnb and Uber have reshaped their industries, but more companies like WeWork and Theranos have fallen from grace.

Last month, the Amazon third-party brand acquisition company Thrasios filed for bankruptcy. Prior to this, it had raised funds up to the D-round with a valuation reaching tens of billions, but it failed to secure funding for three consecutive years, and ended up on the brink of bankruptcy.

If we extend the timeline, we will find similar scenes constantly playing out.

One of the largest internet freight platforms in the United States, Convoy, once had a valuation as high as 3.8 billion US dollars, but closed down due to failed financing. Two genetic testing unicorns, Invitae and 23andMe, fell one after another, with their valuations of tens of billions turning into nothing.

The same goes for the new forces in the electric vehicle industry. From Proterra and Embark abroad to domestic companies like Byton, WM Motor, and Dearcc, many electric vehicle unicorns have been reported to be facing operational difficulties, mostly due to financing difficulties, making it difficult to continue. It's no wonder that investors lament that one-third of unicorns have died, but their deaths have been kept secret.

This is the dilemma facing unicorns worldwide—they can't secure funding for the next round.

Looking back two or three years ago, founders were even forcing investors to exit rounds of financing that were oversubscribed. Now, some companies are facing a harsh reality: their valuations are far below expectations, and they can't raise money.

Recently, prominent American venture capitalist Elad Gil made a prediction: 2024 will be a year of accelerated deaths for many startups because a lot of companies that don't have enough revenue have almost spent the money they raised in the previous round.

Research firm PitchBook reports that globally, over 400 unicorn companies have not raised new funds since 2021, accounting for one-third of unicorn startups.

Examining these unicorns caught in the storm, without exception, they all share common traits: too fast fundraising, overly high valuations, no prospect of profitability, and unable to escape the dilemma of continuous cash burn.

Sky-high valuations with no takers

"Most companies that raised huge amounts of capital around 2021 may never achieve such valuations again," lamented a Silicon Valley investor.

And the aftermath of high valuations in the primary market has taught a brutal lesson to venture capitalists.

Looking back over the past few years, the domestic primary market's overvaluation is evident:

The once booming consumption feast brewed a huge valuation bubble in the primary market, leaving investors unable to see the way forward, but the tide quickly receded. The semiconductor and new energy industries, once overwhelmed by hundreds of millions of yuan in angel rounds, saw valuations skyrocketing become commonplace. Even the hot AI mega-model field became increasingly "expensive" as investors flocked in...

Following this, the primary market is facing a severe exit dilemma, with frequent occurrences of IPOs plummeting, whether in A-shares or Hong Kong stocks, leaving a group of VC/PE investors unable to hide their disappointment—first and second-tier valuations inverted, and investors even lost money by the Series B round.

In turn, this will obviously exacerbate the deterioration of the financing environment.

When valuations are too high or uncertainty is high, investors tend to adopt a wait-and-see attitude, become more cautious, and delve deeper into the company's financial situation, focusing on cash flow, profitability, and sustainable growth. Even dividend-style investments are becoming popular—recovering investment costs over five years through dividends.

"With the end of the low-interest-rate era, money has become more expensive than before, which means the logic of valuation has also changed, and the market's choices for investment are moving towards a lower-risk trend," said Fu Jixun, managing partner of Ji Yuan Capital. He previously stated that in 2024, expectations need to be lowered, and if financing or fundraising is still based on valuation expectations from one or two years ago, it will be quite difficult.

Abandon fantasies and face reality.