ShareChat faces large valuation cut in new funding

ShareChat is in final stages of deliberations to secure about $50 million in new funding that trims the startup’s valuation to as low as below $1.5 billion, according to two sources familiar with the matter.

Existing backers including Temasek and Tencent are among the investors in advanced stages of talks to invest in the new round, the sources said, requesting anonymity as the matter is private. ShareChat has had discussions with several potential new investors this year, but many have balked at the opportunity due to the startup’s high valuation expectations relative to its currently low revenue, according to one of the potential investors with whom the startup engaged.

The terms of the talks, which are still ongoing so they may slightly change, currently value ShareChat below $1.5 billion, the sources said, a steep drop from the $4.9 billion valuation at which ShareChat raised funding early last year.

A round could finalize as early as end of the year. ShareChat, which claims to have more than 400 million users but fewer than 40 million, per Sensor Tower, said the valuation figures were “grossly inaccurate.” Temasek declined to comment, citing its policy.

The loss-making Bengaluru-headquartered startup — which operates a social network and counts X, Snap and Tiger Global among its backers — has raised more than $1.4 billion to date, according to venture intelligence platform Tracxn.

ShareChat’s failed wager on the Indian short-video space amid the TikTok ban has forced a hunt for funds and prompted the markdown. (In late 2020 and early 2021, X explored buying ShareChat in a $2 billion deal, TechCrunch exclusively reported earlier.)

ShareChat, which launched the short-video app Moj in mid-2020, doubled down on the category by acquiring MX TakaTak, a video app from Times Internet’s portfolio, for over $600 million; however industry analysts say YouTube and Instagram filled the TikTok void as creators migrated to those far larger platforms.

Eight-year-old ShareChat, whose two co-founders left earlier this year to launch a new startup, has been scrambling to find ways to grow its revenue and trim expenses. It has attempted a series of initiatives, including a fantasy sports app and a live audio chat service. But at the financial year ending March, its revenue remained below $65 million. It plans to reduce its workforce by another 15% to 20%, or 200-300 people, in the coming weeks, according to another person familiar with the matter. This would be the third layoff from the startup in one year. (After the publication of this story, ShareChat confirmed the layoff, saying about 200 jobs were being eliminated.)

Numerous investors are writing down the worth of their holdings in startups globally amid the protracted slowdown in economy that has also cut short the valuations of nearly every public tech firm. Prosus recently marked down the valuation of Byju’s to below $3 billion, down from $22 billion in early 2022. Byju’s has raised more than $5 billion in equity and via debt over the years.