Redefining moment for Indian unicorns

A cash-burn ecosystem is waning out, as startups are watched by investors keenly for their unit economics, and they want returns for money spent
Last Updated 12 March 2017, 18:52 IST
The emergence of unicorns among Indian startups has really brought a moral booster for entrepreneurship across the country. Even though Internet companies ruled the unicorn landscape with their copycat model, startups solving real issues and larger enterprise-related technology issues also emerged. The unicorns, known for their cash burning and customer acquisition tactics, are going through course a correction journey amid devaluation, and there is a growing clamour for unit economics and deep technology domain requirements.

The landscape where unicorns seeded their business in the last decade underwent dramatic changes as broadband connectivity and digitisation have disrupted the business models across verticals. Along with it, India is also witnessing a mobile revolution as around 400 million people are embracing the smartphone, without any hassle of any legacy system.

According to analysts, the existing unicorns, especially Flipkart, Snapdeal and Paytm, have redefined significantly the contours of Indian urban life over a decade, and to certain extent rural folks too. Aileen Lee, a venture capitalist who first brought the concept of unicorn to the lexicon of Silicon Valley in her article ‘Welcome to the Unicorn Club: Learning From Billion-Dollar StartUps, published in TechCrunch, predicted the onset of valuation popularity gaining momentum.

Indian unicorns are going through a valuation crisis as they are facing waves of boom and bust for the first time. The focus of the investors and entrepreneurs has gradually shifted from popularity to economy-driven scalable criterion. A lot of small startups with strong and scalable models are preferred by the investors over the existing unicorns.

Subrata Mitra, Partner at Accel Partners, said that India’s current actual GDP is $2.2 trillion to $2.5 trillion. “It will double within ten years and will pave the way for more economic and business opportunities. “The first two trillion happened in the offline, traditional construction like areas. The next $2 trillion will take advantage of the current infrastructure built for payment and communication,” he said.

Mitra pointed out that a growing economy brings on board large a consumer base which is still young and likely to join with the working population soon.

“Here you are going to witness a significant opportunity for companies, which are digitally savvy to take advantage of making market-place or deploying technology to make things better,” he said.

CB Insights and WSJ came up with a list of seven Indian startups in the unicorn list namely Flipkart, Snapdeal, Ola, One97 Communications, InMobi, Quikr, Zomato and Mu Sigma. The list further ballooned with the joining of Paytm and Paytm Marketplace. We also have a list of startups like BankBazaar, BigBasket, BookMyShow, Delhivery, FreshDesk, Pepperfry, Practo and OYO Rooms, among the few, which if the current trend continues, are expected to be the next probable unicorns,” it said.

According to India Internetfund founding partner Anirudh Suri, the current unicorns should focus on sustainable business models. “There should be focused on profitable growth. Their further scaling up should happen only after they have achieved product-market fit and narrowed down on a sustainable, long-term business model,” said Suri.

This is very important as the cash-burn ecosystem is waning out as the companies are watched by their investors very keenly for their unit economics. Investors want every unit of money spend to bring back returns. Now the Indian startups, especially the ecommerce ones, are finding a devaluation because of their mismanagement of finances. “These startups burned more money and failed to attain more clients to replace this cash burning exercise. Also, the traction they are witnessing is not up to the mark,” said an analyst.

Indian unicorns attracted high-profile talents during the heyday, and lots of Silicon Valley experts came back home. But they also had to face the heat of spending more money and were compelled to undergo course correction. According to analysts, since the end of 2014, Flipkart, Snapdeal and Ola have hired some 20 executives at the senior vice president level from other industries and Silicon Valley. And around 80% of them have already left the organisation.

The companies raised funds as per their requirements and the current unicorns have been facing severe fund crunch. Primarily the investors are now seeking return for their investment and not looking at only GMV (gross merchandise value).

“Fundraising in India will remain a bit difficult until the issues with the larger tech startups are sorted out. That said, a lot of domestic and global VC funds continue to allocate funds to Indian startups. So there should not be a dearth of funding for the right companies,” said Suri.

When asked about going for an IPO early by these unicorns, Suri said that it is not an option for most of these startups as they do not fulfill the strict criteria in India laid down by Sebi for raising public equity.

Indian unicorns are victims of unrealistic valuations and their founders are unable to spend this money in a proper way. The initial spend of capital for market creation is understandable. Once they achieve their growth, they will have to give profitability. For that they should make their business model sustainable. Meru Cabs and GirnarSoft, which runs portals CarDekho, Gaadi and ZigWheels, made some changes in their business model and still in the rut.

According to analysts, Flipkart posted revenues of Rs 17,930 crore against a loss of Rs 5,769 crore for the year ended March 2016.’s listing on the Nasdaq through a reverse merger in December last year is probably the high point of the last decade. Except Flipkart buying Myntra and then Jabong, besides the MakeMyTrip-Ibibo Group merger, the Indian unicorn ecosystem never witnessed any larger consolidation. Quikr, led by its founder Pranay Chulet, succeeded in creating a vertical business.

BankBazaar Co-founder and CEO Adhil Shetty said that getting into the unicorn world is a challenge. “Our journey has been in terms of building a paperless user experience for the last eight years. Without any piece of paper, one can access his or her financial product on mobile. Consumers want seamless delivery of products in a situation where they have multiple options,” he said.

Shetty pointed out that in the last two years, it was learning more on positive unit economics. “Today, it is very important that revenue generated by the sales of products should be significantly greater than their cost,” he said.

Founder and Managing Partner of Ara Law Rajesh Begur said it would be certainly interesting and encouraging to see the innovative approach in domains like robotics, artificial intelligence, security and social ventures succeeding in gaining the confidence of investors and becoming the next wave of potential unicorns.

“Also, there is a need to witness few exits happening in the market in the near future, preferably from the existing unicorns. Such exits from the existing unicorns would certainly raise the possibility of scaling up of business by potential unicorns and also act as a booster for VCs and startups,” said Begur.

A tectonic shift is being witnessed in the way unicorns are viewed from the last couple of years. It is the exit or shutdown phase for the copycat and mutant models, whereas the innovative ones will certainly flourish amidst all the changing market dynamics. Besides bringing positive unit economics with each unit sold covering the fixed cost, the new-age startups, with their innovative and unique ideas, should flourish and become next unicorns.
(Published 12 March 2017, 17:30 IST)

Follow us on