With a 70 per cent drop in funding since FY22, Indian startups are in the midst of a funding winter, which is now forcing them to reduce burn rate and expedite their path to profitability. Consulting firm Redseer’s analysis of 100 unicorns projects the number of profitable unicorns to grow from 30 in FY22 to 55 in FY27.
The Indian startup world has been on a roller coaster ride for the last few years owing to disruptions on a macro scale. While it experienced a sharp funding peak during FY22 totalling $50 billion, a gradual onset of funding winter over the subsequent quarters led to a 70% drop in FY23 to $15 billion.
” The increasing cost of capital and interest rates, recession in developed markets, a decline in the value of tech stocks, and the slowdown in consumer internet growth have all been challenges for sustained funding. Consequently, startups are focusing on expediting their path to profitability and reducing burn
rates,” said Mohit Rana, Partner at Redseer.
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There are about 100 unicorns and less than 400 public companies with a market cap of over $1 billion. Ownership of founders in startups is also limited (0-20%) in 59% of private companies, as compared to public companies (50%+) in 65% of public companies.
Listed tech companies have made improvements in the last five quarters
A similar path to profitability has been observed from global peers as well. “Uber increased take rates to 28% in 2022 – an increase from 15% in 2021, reduced incentives to drivers, and expanded revenue streams. Airbnb optimized and maintained cost discipline in workforce and marketing and increased fees from guests and hosts,” said Rana.
Redseer predict that profitable unicorns in India could generate 5X the profit in FY27 as they did in FY22.