Exclusive: Decoding Practo’s $32 Mn fresh round with 50% lower valuation

After a gap of three years, Practo has raised $32 million in a fresh round with at least a 50% haircut in its valuation. According to regulatory filings in Singapore, Chinese life insurance conglomerate A1A Company has led the round with a $20 million infusion. 

Existing investors Tencent (via Sky Blue Enjoy) and Sequoia capital pumped in $5.34 and $3 million respectively while Sofina Ventures put in $1.5 million. Matrix Partners has invested $1.022 million. Google’s venture capital arm G Capital and RTP Global participate with $330K and $800K, respectively.

Practo was valued $620 million in its series D round in January 2017. According to Fintrackr’s estimate, the company has been valued in the range of $300-$310 million in the new round, which is a discount of over 50%.

The Ken had first written about Practo’s new financing round on Friday.

Large funding rounds raised by growth-stage startups at lofty valuations isn’t a moat that guarantees success. This has been proven on many occasions, globally as well as locally. FashionAndYou, ShopClues, Housing, Urban Ladder and Quikr have not been successful even after raising large sums of money. Health-tech firm Practo is no exception.

Post allotment, Sequoia Capital has turned out to be the largest stakeholder in Practo with 39.33%, followed by Tencent (11.48%). Matrix Partners and AIA Hong Kong own 7.51% and 7.23%, respectively. Sofina holds 7.1% while Capital G has 3.16% stakes in the company.

Co-founders Shashank DattaReya owns 6.79% of Practo, and Abhinav Lal is left with 6.19% stakes. For other stakeholders ownership in Practo, refer below shareholding pattern.

Several other filings analysed by Entrackr reveal that Capital G, Tencent, Sequoia Capital, RTP Ventures, Matrix Partners have entered into an agreement with Practo to convert their debentures into preference shares. The company has allotted an aggregate of 882,448 Series D1 preference shares to the investors mentioned above, which will help it in improving the state of its balance sheet.

Since the company has raised fresh capital at a heavily discounted valuation, anti-dilution clauses protecting the interests of the early-stage investors have been put in place. As a result, Practo is also allotting 75,071 Series C1 and 158,930 Series D shares to its backers without any cash consideration to compensate them. 

In the past couple of years, large scale companies rarely raised a round that reduced their valuation at half of the last round. Grofers raised a round from SoftBank with a haircut of 35% in valuation, but it was an internal round led by SoftBank. Later, the e-grocer raised follow-on round at a premium. 

While Practo’s financial health in FY19 couldn’t be ascertained as it is yet to file relevant documents, it’s unlikely that the company had made any drastic improvement on financial metrics. Instead of focusing on creating moats in certain areas, the company’s horizontal aspiration seems to have cost it much. Practo deals in doctor/hospital discovery and management to telemedicine, e-pharmacy, insurance, lending among several others. 

So far, Practo has acquired five startups, including Enlightiks, that sold to US-based consulting firm Mango Solutions in a fire sale. Entrackr had exclusively reported the deal in December last year. Practo had acquired Enlightiks in a deal worth $14 million in 2016. 

With the fresh capital, will Practo narrow down focus on a few opportunities and sail through the tough time?

*The post has been updated to reflect Sky Blue Enjoy is owned by Tencent.