Marred by a continued slowdown in funding activity as compared to the capital-guzzling 2021, this year is likely to continue seeing subdued startup valuations, reducing the pace of newer unicorns, a top executive from Tracxn said.
A unicorn is a company valued at $1 billion or above.
However, the number of companies turning unicorns will be increasing in the five-year horizon, said Neha Singh, chief executive of the market intelligence platform. It will be a gradual increase, she said, adding that India’s ecosystem is gradually becoming attractive to investors amidst the re-emergence of COVID in China and the Russia-Ukraine war.
A report published by Traxcn last week points to a nearly 34% year-on-year decline in overall funding values in 2022 due to weakness in late-stage funding. Total funding raised in the last year was around $35.6 billion against $53.7 billion raised in 2021.
According to Traxcn, late-stage startup funding declined about 45% YoY to $16.1 billion from $29.3 billion in 2021, as of 5 December.
Singh pointed that unicorn activity in India has significantly picked up in the last five years even when 2021 is kept aside as an aberration due to high levels of available funding. “This is a testimony to the fact that how many mature companies are now in India,” she said.
As per Tracxn data, no company hit the $1 billion valuation in 2017, while the number jumped to 15 in 2020, 44 in 2021 and 23 in the last year.
In 2022, some players that touched the $1 billion valuation included OneCard, Shiprocket, Yubi, among others. Interestingly, only 13 of the 23 unicorns are profitable, including Molbio Diagnostics, PhysicsWallah, Oxyzo, Amagi and CoinSwitch, among others.
According to Singh, there is always a tussle between fast, versus “sobered down” growth for startups, which, in turn, determines the stage at which they may turn profitable.
However, going forward, the Tracxn chief executive expects an increased focus on profitability vis-a-vis valuation seeing the higher interest rate regime, and discounting of future cash flows by late-stage investors.
“So, there is more focus from the late-stage investors around profitability,” she said.
Companies are often focused on pushing their growth instead of achieving profitability, therefore, growth and profitability, for startups, are widely considered mutually exclusive targets.
“If there is a lot of funding available in late-stage, which was the case in 2021, because of the low interest rates, there’s abundance of capital to be deployed,” she said, adding that startups may, therefore, delay their profitability target and pivot their focus on growth instead.
