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Despite VC firms scaling down investments, India adds 14 unicorns in last 6 months

Despite funding for start-ups drying up and investors becoming cautious about the investments they are making, India has added 14 unicorns in the last six months, thereby retaining the third rank in the ‘Global Unicorn Index 2022 Half-Year Report’, according to a report by analytics firm Hurun India. The report also noted that 56 unicorns have been founded by Indians based out of the country and the total number of unicorns founded by Indians stands at 124.

The start-up ecosystem in India is the third largest in the world after the US and China, having 625 and 312 unicorns, respectively. In India, the unicorn bandwagon is led by edtech player Byju’s ($22 billion), food delivery startup Swiggy ($11 billion), and fantasy gaming company Dream11 ($8 billion). 

As of September 1, 2022, India houses 77,473 start-ups, as per the data provided by the Union Ministry of Commerce & Industry.

Anas Rahman Junaid, MD and Chief Researcher at Hurun India, commenting on the rankings, observed that these developments points towards the fact that India’s start-up environment is growing at a never-seen-before pace. 

“Probably the pandemic has hastened the disruption of traditional businesses and helped in the ascendancy of start-ups. Slowly, the ecosystem is achieving the desired maturity and resilience,” Junaid added.

However, despite these rankings, another report, brought out by Hurun India four days ago, shows that funding for start-ups has indeed seen a decline, not just in India but globally as well. 

Similarly, echoing the Hurun India findings, an Ernst & Young report also revealed that PE/VC investments in the country in July this year were the lowest in over a year, both in terms of value and volume, which stood at $3 billion. Investors have been treading on the investment path safely. Several factors can be attributed to the trend.

In the second Hurun report, Junaid clarified that with the combined effects of inflation and the complicated geopolitical situation, along with the below-par performance of many tech IPOs, there is now a sharper focus on unit economics, at least from the perspective of PE/VC firms. 

After going through a rapid rise in funding last year, amidst macroeconomic uncertainty, several top PE/VC firms have been scaling down their investments into start-ups. Moreover, the high-profile stock listing of some famous tech companies too have been lacklustre. Fintech firm Paytm, for instance, witnessed a less-than-decent run at the stock market when it went live with its IPO. Food delivery start-up, Zomato’s shares too has seen the bull and the bear run in equal amounts at the stock market. Other start-ups, such as cab-hailing company Ola and Ritesh Agarwal-led OYO, that were slated to announce their stock market debuts, have also taken a back seat. Marquee investors such as SoftBank, Tiger Global, and more are also showing restraint in the investments they are infusing. Masayoshi Son’s ambitious company, known for its investments in tech companies, marked down 284 companies in its portfolio during the last quarter, which included hundreds of unlisted companies.

The start-ups too have been feeling the weight of this dry spell. Unacademy’s founder, Gaurav Munjal, recently said in a note to his employees that the company is going to take measures to slash the expenses including eliminating complimentary meals for employees, no business class travel for anyone and even removing dedicated drivers for its top executives, indicating the online education platform’s need to put profitability above everything else. 

Apart from start-ups and VCs, the policymakers are also getting ready to delve deeper into the funding and valuation exercise. 

There are media reports, for instance, suggesting that the market regulator, Securities and Exchange Board of India (SEBI) has reportedly reached out to private equity and venture capital firms urging them to share information regarding their valuation practices and processes, indicating that high valuations of the start-ups may come under the scanner in the coming times. 

However, despite the hype around everything that is happening, Junaid remained positive of the start-up ecosystem’s potential in the long-run. Calling it “resilient”, he said, “The pinch felt in the valuation exercise and extra scrutiny of deliverables could help in broad basing the system,” he said.

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