Pharmeasy’s Valuation Slashed By 90% By Investor Neuberger Berman

When startup investments do well, they can turn VCs and entrepreneurs fabulously wealthy. But when they don’t, the results aren’t pretty.

Pharmeasy’s valuation has been slashed by 90% by its investor Neuberger Berman, Techcrunch journalist Manish Singh reports. Neuberger Berman had acquired shares in Pharmeasy at a cost of $8.87 million dollars in October 2021. But as of August 2023, it was valuing those shares at just $8,23,432, which implies a 90% valuation fall for the online pharmacy.

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In July this year, Pharmeasy was reportedly looking to raise emergency funds at a valuation of $500-600 million, which would’ve also corresponded to a 90% valuation cut. But its valuation has now been officially slashed by one of its investors. This isn’t the outcome the company’s investors would’ve hoped for — PharmEasy had been founded in 2015, and has raised $1.6 billion (Rs. 13,000 crore) over the last 8 years. This means that over its existence, forget giving investors a return, PharmEasy has eroded the value of its investments by nearly Rs. 8,000 crore.

PharmEasy’s travails began when it acquired publicly-listed diagnostics company Thyrocare for an estimated Rs. 4,500 crore in June 2021, in what was the first instance of an Indian startup acquiring a listed company. To finance the transaction, PharmEasy had taken on a 5-year loan from Kotak Mahindra bank at 17-18% annual interest. In August 2022, to repay the Kotak loan, PharmEasy took a Rs. 2,280 crore loan from US-based investment bank Goldman Sachs at more favourable terms. At that point, PharmEasy was looking to go public, and had planned to pay off the Goldman Sachs loan with an approximate Rs. 6,250 crore IPO.

But in late 2022, the stock markets soured on Indian startups, and shares of already-listed companies like Paytm, Zomato and Policybazaar fell. PharmEasy was forced to cancel its IPO plans, but this meant that it had no money to pay off Goldman Sachs’ loan. In June 2023, PharmEasy breached its loan covenant by failing to raise Rs. 1,000 crore in equity. The terms of the covenant agreement allowed Goldman Sachs to potentially take over PharmEasy or its diagnostics arm Thyrocare in such a situation, as all the assets of PharmEasy’s parent API Holdings had been used as security for the loan. PharmEasy’s valuation has now been slashed by its own investors by a whopping 90%, knocking it out of the unicorn club.

It’s a sorry situation, and will perhaps be the biggest down-round for an Indian startup of its size. PharmEasy was one of India’s most valuable startups, and its valuation being slashed by 90% could end up putting downward pressure on the valuations of hundreds of smaller startups and companies. And given how freely-flowing VC money had raised valuations to unsustainable levels during the pandemic, this might just be the first in a series of downrounds that might be looming on the horizon for India’s many unicorn startups.