Amid changing investor expectations from ‘growth over profitability’ to ‘profitability at all costs’, Indian startups are hunkering down and slashing expenses, laying off employees, and diversifying revenue streams to fight the prolonged funding winter.
Market experts call this change in priority a much-needed equilibrium for the market which attracted $46 billion in funding in 2021. This change in focus is expected to push 55 unicorns in India to profitability by 2027 from 30 in 2022, according to a report by Redseer Strategy Consulting.
The report also mentioned that about 20% of unicorns will likely struggle due to regulatory challenges, plummeting demand, and unclear business models and will pivot to new models, get acquired, or close entirely.
“The new definition of a unicorn is no longer a billion-dollar valuation but billion-dollar revenue and operational profitability,” Siddarth Pai, founding partner at 3one4 Capital, told DealStreetAsia last month. “Despite record fundraises by investors, VCs are reluctant to do deals unless they see a strong path to profitability in later-stage companies. The venture playbook of the last decade has been completely rewritten as fundamentals come back to the forefront. Companies who adapt, and we should see signs of this later this year, will be able to accumulate capital at attractive terms.”
This comes as many listed companies in India, including Paytm, Zomato, and Delhivery, have taken steps to shed losses.
“Listed tech companies have made significant improvement over the last five quarters. Paytm launched new products, expanded into new business segments, and upsold/cross-sold to existing customers to increase revenue per customer and reduce CAC. Zomato increased take rates from restaurant partners and delivery costs from customers,” Mohit Rana, partner at Redseer, said.
“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 optimised and maintained cost discipline in workforce and marketing and increased fees from guests and hosts,” he added.
The report added that fintech and financial services, B2B, SaaS, and e-commerce sectors are expected to drive the highest pool of profit in the coming years.
The currently profitable unicorns in India could generate five times the profit in FY27 as they did in FY22, the report added.
_2048x1152.jpg?width=1260&height=630&fit=cover&gravity=faces&source=nar-cms)
