As per the Redseer’s path to profitability report, the Indian start-up fundings and deals has dropped by 70% in FY23 when compared to FY22. While it experienced a sharp funding peak during FY22 totalling around $50 billion, a gradual onset of funding winter over the subsequent quarters led to a 70% drop in FY23 to around $15 billion.
According to the report, increasing cost of capital and interest rates, decline in the value of technology stocks, recession in developed markets and slowdown in consumer internet growth are potential reasons for reduced funding.
Elaborating on private unicorns and publicly listed companies valued over US$ 1 billion, the Redseer report offers interesting insights comparing the two. There are about 100 unicorns and less than 400 public companies with a market cap of over $1 billion. While tech has an outsized impact on the economy, there is also a tendency for overvaluation in the startup world. As per the report, ownership of founders in startups is also limited (0-20%) in 59% of private companies, as
compared to public companies (50%+) in 65% of public companies.
Furthermore, listed tech companies have made significant improvement over the last five quarters according to the report. On one side, where Policybazaar has cut its losses by reducing cost-of-customer-acquisition (CAC) related marketing expenses, Delhivery took on backward integration by acquiring full-stack solutions across the value chain. However, Paytm has launched new products to expand its business in new segments. To increase the revenue per customer and reduce the CAC, the company has upsold/ cross-selling to existing customers. Zomato has increased take rates from restaurant partners and delivery cost from customers.
The report further says that a similar trend is observed at global level where Uber increased its take rates to 28% in FY22, marking a 15% increase when compared to FY21. The company also reduced its incentives to drivers and expanded revenue streams further to Uber Eats and Uber Freights.
Projecting four years down the line, Redseer’s analysis of 100 unicorns suggests substantial improvement in profitability, with the number of profitable unicorns projected to grow from approximately 30 unicorns in FY22 to approximately 55 in FY27. According to Redseer, approximately 50% of unicorns are expected to become profitable by FY27, while approx 20% will likely struggle due to regulatory challenges, plummeting demand, and unclear business models.
The report also predicts that profitable unicorns in India could generate five times the profit in FY27 as they did in FY22. The top four sectors expected to drive the highest pool of profit in the coming years are FinTech and financial services, b2b, SaaS, and ecommerce. During the same period, they also expect a decline in losses made by companies. However, many of these unicorns will see funding challenges, drop in valuation and will move to a lower valuation.
Moreover, the players are focusing on and increasing their share of the digital ads market. When compared to the sector wise contribution to the Indian digital ad market, Meta + Google has contributed to about 70%, followed by ecommerce, OTT, gaming and other internet players. Meanwhile, the India digital ad market is expected to increase by about 19 to 21% in FY28 as compared to FY23. In terms of reducing costs, players can further reduce customer service costs while maintaining a high CSAT score. However, only 10% of companies are optimising their spend while maintaining a good CSAT.