Indian unicorns_TP.pptx

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What is a unicorn?
Unicorn is the term used in the venture capital industry to describe a startup company with a valuation of over $1 billion.
Disruptive innovation: Mostly, unicorns bring
innovative and affordable solutions to the market
which might differ from conventional ways.
Common features noted across unicorns:
The ‘firsts’: Unicorns are starters in their
industry. They change the way people do things
and gradually create a necessity for themselves.
High on tech: Their business models are usually
built in such a way that they leverage technology
to capture B2C segment.

Are unicorns rare?
India already has a 100 unicorns; globally it implies every 1 in 10 unicorns is born in India

Or there is another recently famous way to valuation..

Or there is another recently famous way to valuation..
Late-stage investors, desperately
afraid of missing out on acquiring
stakes in possible 'unicorn'
companies have abandoned their
traditional risk analysis.

Money continues flowing in…
India has abundance of factors like cheaper and skilled labor with internet access, beneficial govt. schemes and mature
Investor pool to cultivate startups.
24
36 36
40
63
2020
2019
2017 2018 2021
PE/VC investments in India ($B)
Indian startups raised record $63B from PE/ VC firms in 2021 alone
Combined valuation
$333B+
Estimated unicorns
by 2025
250+ Jobs created
650K +

Where is the money coming from?
In last 18 months, the Federal Reserve has printed as much money as they had printed in the entire history of America
• Total assets on Federal Reserve’s balance
sheet indicates the amount of money pumped
in the economy.
• In 2008, commercial banks were reluctant to
make loans even after central banks slashing
the interest rates to near zero.
• So central banks of US and Europe began
printing money and pumped it in their
respective economies.
• The way this money reached into the system is
by unemployment benefits, public expenditure,
etc.
• Similar uptick can be seen in Bank of England
balance sheet
• These two banks together, increased the
supply of money in world economy.
Money supply
Housing crisis
COVID-19

What happened in past two years?
Liquidity from the US percolated to emerging markets such as India in 2021, inflating valuations and possibly creating a bubble
Government printing money to
stimulate economy

stimulate economy
High inflation (distributed money,
supply shock)

stimulate economy
supply shock)
Bull run in public markets (Also
cryptocurrency, etc.)

stimulate economy
supply shock)
Investors rebalancing portfolio
looking for higher returns

stimulate economy
supply shock)
Money moves to emerging markets

Supply chain choked after demand spike in US.
Too much money chasing too few goods and high-savings rate increased demand; which gave rise to inflation

Unicorns without horns...
Increased interest rates and with QE ending will make fundraising difficult for startups.
• Fed increasing interest rates is a result of their efforts to combat high
inflation.
• With increased cost associated with money, availability goes down.
• As liquidity dries up, loss making companies built on passing benefits
to consumers would eventually require more capital.
• With reduced supply of funds, such companies will find themselves
on crossroads:
1. Either change business plan to generate profits
2. Shut down
• Both options would improve the landscape by promoting healthy
competition
Impact on “Unicorns”

What is the current status?
This is a message Y-Combinator sent to its founder cohort last week

What is the current status?
This is a message Y-Combinator sent to its founder cohort last week
…things don’t look good; expect future fundraising would be
much more difficult
…it’s your responsibility to ensure your company will
survive if you cannot raise money for next 24 months
…if an investor is willing to provide funds (even at lower
valuations), we suggest you consider taking it
…chance of your company raising funds is extremely low,
even if you are doing well

Towering valuations but no sign of profits.
Only 23 out of 100 Indian unicorns are profitable
Startups right now

Similar selloff ensued globally, resulting in VCs reporting record losses.
Increased interest rates impact public markets globally
• Panicked investors pull money from private markets and decrease supply of money available for fundraising
• Bonds would become attractive
Either startups would have to turn profitable, or investors would look to exit.
• Investors may exit at lesser valuations
Rethink growth funding
• Startups would have to rely on profits generated internally to conduct expansion
• They will be the only ones remaining, others are likely to disappear

Impact on economy
Startup party over?
Funding rounds of unicorns like
Meesho, Cred, Groww, Slice,
Unacademy delayed
Fewer unicorns: Only 1 unicorn in
April and May this year, compared
to 15 in same period last year
Tech IPOs deferred: Ola, Oyo,
FirstCry, PharmEasy put off plans
for IPO
Funding slowdown: VC funding
has shown obvious signs of
slowdown on QoQ basis.
Softbank and Tiger global
announce new strategy with
cutbacks in Indian markets
Layoffs: Well funded startups
have sacked over 5,000
employees so far in 2022

What happens in long term and learnings from this…
Anticipation of profits would eventually catch up with reality and investors would require startups to turn profitable

What happens in long term and learnings from this…
Anticipation of profits would eventually catch up with reality and investors would require startups to turn profitable
• Value creation vs valuation: Due to high risk of these
investments, better governance is required from investing
community
• The way investors behave, and express expectations
shapes any industry
• Focus must shift from topline growth to improving
fundamentals and unit economics.
• Valuation must be indicative of amount of value created
and not just bloated estimates on future potential.
• Growth at all costs vs growth at reasonable costs
• Till now, startups have been spending cash to acquire
customers in a race to win the maximum number of
users; so they can get more money from investors
• This would stop with investors requiring startups to adopt
traditional business practices; where VC funding is an
alternative and not a necessity for long term.
Startups right now
Startups eventually

Indian unicorns_TP.pptx

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