Sixteen of India’s 129 unicorns have slipped below the $1-billion valuation mark, underscoring the shakeout that followed the funding boom of 2021 and raising a new question for investors: which startups are facing a temporary valuation reset and which risk becoming India’s own zombie unicorns?
The debate has gathered pace globally after Stanford University data showed a growing number of US startups once valued at more than $1 billion have either raised capital below their peak valuations or are no longer unicorns. By May 2026, 332 of the 1,900 unicorns tracked by Stanford professor Ilya Strebulaev had raised money at or below their previous valuation, while 212 were valued below $1 billion.
India’s investors, however, believe the domestic ecosystem has already undergone much of that correction during the funding winter of 2022-23. According to Tracxn, apart from the 16 unicorns now valued below $1 billion, 23 have gone public and eight have been acquired. India also retained its fourth position globally with 61 unicorns in the Hurun Global Unicorn Index 2026.
“The zombie unicorn conversation in the US is really a mirror being held up to what India lived through during the funding winter,” Ashish Bhatia, founder and CEO of India Accelerator, told Fe. “The companies that survived came out leaner and more disciplined. Today, unit economics and contribution margins are discussed before total addressable market and vision.”
Structural Readjustments
The correction has fundamentally changed the makeup of India’s unicorn ecosystem. From 45 companies in 2021, the number of unicorns created annually has fallen to single digits since 2023, suggesting that the valuation frenzy fuelled by abundant capital has largely played out. Investors say the emphasis has shifted from attaining a billion-dollar valuation to sustaining it.
“What remains is a smaller, more curated set of billion-dollar companies, several of which have turned profitable ahead of or around listing,” Sriharsha KV, partner, Grant Thornton Bharat, said. Companies such as Lenskart, Urban Company and Meesho improved their financial performance before tapping public markets, unlike many of the 2021 vintage startups that prioritised scale over profitability.
That does not mean the risk has disappeared. Investors say businesses that relied heavily on discounts and customer acquisition subsidies continue to face pressure, while sectors such as quick commerce and parts of fintech lending still have to demonstrate that their valuations are supported by sustainable economics. “What has changed is that founders are building for capital efficiency from day one because they have seen what happened to the previous cohort,” Sriharsha KV said.
Public Market Benchmarks
Public markets have also emerged as the final test of whether startups deserve their unicorn valuations. Mixed performances by early technology IPOs such as Paytm, Nykaa and PolicyBazaar prompted investors to place greater emphasis on earnings, cash flows and execution rather than growth projections alone. Domestic mutual funds, now among the largest buyers of technology IPOs, increasingly evaluate companies on forward earnings and cash generation.
The change is reflected in funding trends as well. According to the EY-IVCA 2026 report, private equity and venture capital investments in India rose 8% to $60.7 billion in 2025 even as startup deal volumes fell nearly 39%, indicating that investors are writing larger cheques to fewer companies with proven business models. Growth-stage funding remains the most selective segment, with investors demanding a clearer path to profitability before backing companies beyond the early stages.
For investors, the more important distinction today is no longer between unicorns and non-unicorns, but between companies that can sustain billion-dollar valuations and those that cannot. The next generation of Indian unicorns, they say, is likely to be smaller in number but better equipped to avoid becoming the next wave of zombie startups.