Although most unicorns are still deep in the red, and profits are not forthcoming, their valuations are the elephant in the room that no one wants to discuss
While investors cite their theories and playbooks for putting money in these (loss-making) businesses, founders are busy playing in the name of innovation, category building, gross merchandise value (GMV) for some, and other metrics which do not convert to actual money
According to an Inc42 analysis, of the 60+ Indian unicorns analysed, 37 companies had their multiples higher than the median multiple of the top 10 US-based unicorns
The Indian startup ecosystem is very different today from what it was a decade ago. As the landscape has grown fiercely competitive over the years, ventures move from one animal tag to another that essentially sums up their operational strategies.
We have the unicorns and their dream success runs to hit billion-dollar valuations. But there are also the startup dragons, the centaurs and the gazelles, the cheetahs and the zebras, leveraging different windows of opportunity.
Some have also earned negative connotations (dinosaurs, elephants, insects and leeches), although the roaches are highly valued for their resilience. In brief, it is a fast-evolving startup jungle out there, with everyone zeroing in on growth despite the cyclical ups and downs.
Interestingly, Indian startups saw an unprecedented funding swing, unicorn creation and IPOs in 2021 despite the pandemic. The frothy market, triggered by FOMO and the subsequent free-flowing VC money, sped up the startups’ growth journey multifold.
But the good times did not last long. High-interest rates and concerns about stagflation have taken their toll on liquidity, and capital inflow has dried up with the onset of a long and harsh funding winter.
Consider this. Indian startups raised $3 Bn in Q1 2023, down 75% from $12 Bn amassed in Q1 2022. Additionally, there were only seven mega deals in Q1 this year, a drop of 77% against Q1 2022.
The situation has worsened as the slowdown and volatility hit the public markets. In fact, many of the listed unicorns from India that went public in the past two years are now struggling below their issue prices.
Then there are intermittent startup shutdowns, zero unicorns added since September 2022, delayed IPOs and companies scaling back their operations to focus on their core offerings.
And finally, there are losses, and the revenue multiple led skyrocketing valuations.
Of the 74 unicorns included in Inc42’s report on top 200 startup financials, 55 reported a collective operating loss of $5.9 Bn in FY22 (the remaining 19 were operationally profitable.) With a median expenditure-to-revenue ratio of 1.5, these loss-making unicorns spent INR 1.5 to generate INR 1 in revenue in FY22.