As a direct fallout of venture capital (VC) firms tightening their purse strings and asking founders to focus more on profitability, no unicorn has been minted in the past six months in the country. This is the longest gap in the last seven years, according to data compiled by Tracxn.
Molbio Diagnostics, a Goa-based health tech platform, which raised $85 million from Temasek at a valuation of $1.6 billion in September 2022, was the last startup to become a unicorn.
Prior to this, the longest gap was of two years – Zomato had turned unicorn in February 2018 after ShopClues entered the club in January 2016.
Unicorn is a term used in the VC industry to describe a privately-held startup valued at or over $1 billion.
The number of startups turning into unicorns reduced by 50% year-on-year to 23 in 2022. In 2021, one unicorn was being minted roughly every week with 44 being born during the year.
Rahul Chowdhri, partner, Stellaris Venture Partners, said when startups choose profitable growth, the need for cash also goes down, and that’s why fewer companies raise money and enter the unicorn club. “Some startups were earlier able to raise capital ahead of time — so investors paid for future numbers which isn’t the case now, they want to pay for the real/current metrics but founders are willing to wait, grow to a desired valuation and later raise money,” he said.
“However, in 4-6 months from now, we should see more funding activity happening because even VCs need to return money to their limited partners (LPs),” Chowdhri added. Since companies that raised large amounts previously are still sitting on cash, it was unlikely that large rounds, of over $100 million each, would return to their 2021 levels. That was likely also the reason why the number of large deals already fell around 50% y-o-y from 92 to 48 in 2022, according to a report jointly published by Bain and Company and the Indian Venture and Alternate Capital Association (IVCA). Instead, startups would be seen raising money that was crucial for the business.
Karthik Reddy, co-founder and managing partner, Blume Ventures, said he was asking portfolio companies if they can turn profitable, get close to it or demonstrate sharply better unit economics with only the cash that was left in the bank. “If we can’t, then convince internal or external investors to give at least enough capital to prove this trajectory. If that seems impossible/improbable to investors, even after cost reductions, then one has to sadly sell the business or shutter down which can happen too,” Reddy said. However, to fund growth plans in 2023, there was a “likelihood of a few flat or down rounds as investors re-evaluate their portfolios, (like) Oyo’s devaluation by SoftBank, and pressure from public market multiples trickles down into the ecosystem,” the report by Bain and Company, and IVCA added.