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, thus retaining the third spot in the ‘Mid-Year Report’. of the Global Unicorn Index 2022′, according to a report by analysis firm Hurun India. The report also noted that 56 unicorns have been founded by Indians outside the country and the total number of Indian-founded unicorns is 124.

The startup ecosystem in India is the third largest in the world after the US and China, with 625 and 312 unicorns, respectively. In India, the unicorn bandwagon is led by edtech gamer Byju’s ($22bn), food delivery company Swiggy ($11bn), and fantasy game company Dream11 ($8bn). .

As of September 1, 2022, India is home to 77,473 startups, according to data provided by the Union Ministry of Trade and Industry.

Anas Rahman Junaid, MD and Principal Researcher at Hurun India, commenting on the rankings, noted that these developments point to the fact that India’s startup environment is growing at a rate never seen before.

“The pandemic has likely accelerated the disruption of traditional businesses and aided the rise of startups. Slowly, the ecosystem is achieving the desired maturity and resilience,” added Junaid.

Yet despite these rankings, another report, released by Hurun India four days ago, shows that funding for startups has seen a decline, not only in India but also globally.

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 amounted to $ 3 billion. Investors have been treading the path of investing safely. Several factors can be attributed to the trend.

In Hurun’s second report, Junaid clarified that with the combined effects of inflation and the challenging geopolitical situation, coupled with the below-average performance of many tech IPOs, there is now a sharper focus on unit economics, by least from the perspective of PE/venture capital firms.

After undergoing a rapid increase in funding last year, amid macroeconomic uncertainty, several major PE/VC companies have scaled back their investments in start-ups. In addition, the high-profile stock listing of some famous technology companies has also been lackluster. Fintech firm Paytm, for example, witnessed a less than decent run on the stock market when it went live with its IPO. Food delivery startup Zomato’s stock has also seen the bull and bear run in equal amounts on the stock market. Other start-ups, such as the Ola taxi company and Ritesh Agarwal-led OYO, which were scheduled to announce their stock market debut, have also been sidelined. Prominent investors like 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 technology companies, downgraded 284 companies in its portfolio last quarter, which included hundreds of private companies.

Startups have also been feeling the brunt of this dry spell. Unacademy founder Gaurav Munjal recently said in a note to his employees that the company will take steps to cut expenses, including eliminating free meals for employees, banning business class travel for anyone, and even eliminating dedicated drivers for their top executives, indicating the need for the online education platform to put profitability above all else.

Aside from start-ups and venture capitalists, policy makers are also preparing to go deeper into the financing and valuation exercise.

There are media reports, for example, suggesting that the market regulator, the Securities and Exchange Board of India (SEBI), has approached private equity and venture capital firms, urging them to share information about their valuation practices and processes, signaling that high-end startup valuations may come under the scanner in the near future.

Yet despite the hype around everything that’s going on, Junaid remained optimistic about the startup ecosystem’s long-term potential. Calling it “robust,” he said, “the pinch felt in the valuation exercise and the additional scrutiny of deliverables could help establish a broad base of the system,” he said.

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