Unicorns vs Cockroach startups: India has not produced any new unicorn startup firm in the last five months, suggesting that venture capitalists have shifted focus to cockroach startups, as funding winter intensifies due to global uncertainty. The recent collapse of US-based Silicon Valley Bank (SVB), which mainly funded startups, has forced investors, banks and startup founders to reevaluate their long-term plans and working mechanism. In the startup world, a ‘unicorn’ is a private company valued at over $1 billion – these are rare and highly sought-after companies. A ‘cockroach’ startup is one that is resilient and can survive through tough times – much like how cockroaches are known to survive in even the harshest environments.
SVB collapse poses funding challenge to Indian startups
“Post the global uncertainty and recent collapse of the Silicon Valley Bank (SVB), startups across the world including India are likely to face funding challenges. But there is still hope for Indian startups in 2023, but definitely, it is not going to be an easy money-raising year, coupled with inflationary trends,” said Aamar Deo Singh, Head Advisory, Angel One Ltd.
In time of uncertainty, cockroach startups would win
“India added only 22 unicorns (privately held billion-dollar enterprises) in 2022, down 51% from 46 in 2021. Hence, VCs have diverted their attention from unicorns to cockroaches. In a time when uncertainty is ramping up worldwide, cockroach startups would win out because of their competency to achieve real, raw profits, not the ones boasting glitzy valuations but having a heavy red bottom line,” said Akshat Garg, Manager – Research at Choice Wealth.
2023 may only see cockroach startups
“Between January and October 2022, the Indian startup ecosystem experienced growth, but now that it has been almost five months, the trend says that this year may only see cockroach startups,” said Rameshver Dongre, Research Analyst – Equity Research. “With several tech companies faltering in their valuations post listing and other tech IPOs being delayed, 2023 is most likely to be the year of startup ‘cockroaches’ where one goes back to the fundamentals of business like bootstrapping with your own funds, hiring only as many people as needed, focusing on the business as opposed to the next round of funding, and its valuation (which are not always prioritised in this order) and finally raising money for actual growth as opposed to funding a perennial burn, hoping for some Eureka profitability one fine day,” said Karan Desai, Founder, Interface Ventures.
Cockroach startups quietly developing future by solving real problems
“Even though unicorn mania is sweeping the world, cockroach startups are quietly developing the future by solving the problems humans face. A startup’s success is not measured by its unicorn status, but rather by its ability to create sustainable growth and make a positive impact on the world,” said Ram Shriram, Chief Executive Officer, Mahagram.
As funding winter intensifies, VCs looking for startups that can withstand fund crunch
“As the tech funding winter approaches, venture capitalists (VCs) are looking for startups that can withstand fund crunch and work around, rather than pumping their funds into Unicorn companies. While unicorns will undoubtedly continue to attract significant attention and investment, the trend towards cockroach companies is also likely to persist,” said Krishna Raghavan- Founder at Unlistedkart. “The pandemic impact and the continued funding winter make it even more critical for the start-ups to drop unicorn aspirations and build sustainable business models capable of making a larger impact on society and the economy,” said Aditya Damani, Founder and CEO, Credit Fair.
Focus on value and financial health to be strong theme in 2023
“This could very well be a situation for the next 3/5 years where all startups will have to change their ways of operating from growth at any cost to reasonable growth with profitability. Focus on the Value and financial health of the company is going to be a strong theme. This is the beginning of the year of cockroach Startups,” said Rajat Mehta, director at Mehta Equities Ltd. “In this time of funding winter, it’s the cockroach start-up-like approach which will build the sustainable path to growth in 2023, not the extravagant display of valuation game,” said Vinayak Burman, Managing & Founder Partner, Vertices Partners. “The year of overpriced valuations has passed with a global correction across markets. Now the cockroaches will survive assuming they’re able to retain customers without beefed up spending on marketing and lean teams to support operations,” said Neha Khanna, Director, ValPro and Enablers.