In a concerning trend for India's thriving startup ecosystem, the valuations of Indian unicorns have been steadily declining, marking the longest drought in seven years without the birth of a new unicorn. This slowdown indicates that the unicorn frenzy, which had captivated investors and entrepreneurs alike, is waning under the grip of the much-discussed funding winter that is exerting pressure on technology startup valuations globally.
Troubling times for startups
India emerged as the world's third-largest startup and unicorn hub in January of last year, surpassing 61,000 recognized startups and nearly 80 unicorns, trailing only behind the United States and China, as reported in the Economic Survey of 2022. However, the current tally of unicorns has now reached 108, while the number of recognized startups has exceeded 81,000.
The contrast between the present data and that of 2021 is stark. Just two years ago, India was witnessing the emergence of a new unicorn almost every week, with an impressive 44 new unicorns minted in 2021 and an additional 23 added in the first nine months of 2022.
The dry spell in funding for Indian startups commenced after Molbio Diagnostics achieved unicorn status in September 2022, raising $85 million from Temasek and Motilal Oswal Alternates at a valuation of $1.53 billion, according to data from Venture Intelligence. Since then, no technology startup in the country has achieved the coveted unicorn milestone, marking the longest period of drought since August 2016.
Factors driving this trend
The change in fortunes can be attributed to central banks across the globe raising interest rates, leading to the cost of capital becoming prohibitively expensive. Consequently, investors have become increasingly cautious, negotiating hard with founders and accepting significantly lower valuations compared to the previous year. The prevailing slowdown has prompted concerns regarding the future earnings of companies. Observers anticipate that companies will encounter challenges in raising funds at their current or higher valuations as investors grow more apprehensive about the potential deceleration of future earnings. While down rounds are not yet prevalent, industry experts anticipate that India may witness a few in the coming quarters.
Swiggy revised downwards
The impact of the funding winter can be exemplified by the recent valuation slash suffered by Swiggy, one of India's leading food delivery platforms. Invesco, one of Swiggy's investors, reportedly reduced its valuation by half. This marks the second devaluation of Swiggy by Invesco within a year, as revealed in filings. Swiggy's valuation stood at $10.7 billion after its $700 million Series J funding round led by Invesco in January 2022.
However, in October of the same year, Invesco decreased the company's valuation to $8.2 billion. In January 2023, the valuation was further slashed to $5.5 billion, representing a nearly 49% decrease from the previous funding round. Swiggy's valuation trajectory closely mirrors that of Zomato, another prominent food delivery platform based in India, which experienced a significant decrease in market cap from $13 billion at its July 2021 IPO to $5.3 billion in May of the following year.
The declining valuations of Indian unicorns reflect the challenges faced by technology startups in the current funding winter. As investors become more cautious and negotiate harder, companies may struggle to raise funds at desired valuations. The future of India's unicorn ecosystem hangs in the balance as the effects of the funding winter continue to unfold.