Unicorns feel funding winter chill; see fall in numbers

The valuation of firms like Quikr, Paytm Mall, and Hike have dropped below $1 billion. Shopclues and Blinkit were acquired for a fraction of their billion-dollar valuation.

Shivani Shinde reports.

The drying up of funds for a number of start-ups is affecting the firms’ unicorn status across the globe.

The past six months have seen the valuations of 147 unicorns drop, of which 71 were from the US and 29 from China, according to the latest Hurun Global Unicorn Index 2022.

Eighty-one unicorns from across the globe saw their valuations drop below $1 billion—the threshold for a start-up to be labelled unicorn—from last year.

Of these, 36 where from the US and 35 from China.

Though India has not seen many unicorns drop off the list in the past year, a few have seen a decline in their valuations and hence are getting dropped off the list.

According to data provided by Tracxn, India has seen almost seven start-ups falling of the list since the country first reported its first unicorn.

These include Paytm Mall, Blinkit, Shopclues and Quikr. Some of the others who fell off the list and shut shop include Hike.

The valuation of firms like Quikr,and  Paytm Mall have dropped below $1 billion. Shopclues and Blinkit were acquired for a fraction of their billion-dollar valuation.

Unicorns such as OYO and Olacabs have seen their valuations erode over a period of time.

The valuation of Ola Cabs was reduced by its investors (Vanguard) multiple times from its peak of $6 billion to $3 billion in 2021.

Similarly, according to a report, OYO’s valuation has been cut to $2.7 billion from a peak of $9.6 billion.

“Companies are valued based on future profitability where a discount rate is used to calculate the current valuation.

"Valuation goes down whenever there is a rise in the discount rate.

"The quantum of funding is on a decline and investors' willingness to take risks has gone down significantly resulting in lower valuations of companies.

"Also, the valuations of public tech companies have fallen by 50 per cent across the globe,” said Neha Singh, co-founder Tracxn.

Fall in the valuation is also reflected in the funds raised by the start-up ecosystem so far.

For the second quarter of CY22, start-ups raised $6.8 billion, a drop of 40 per cent compared to the first quarter of CY22, according to a PwC India report.

Anas Junaid, managing director and chief researcher, Hurun India, cites global factors for the fall of many start-ups off the unicorn list in the US and China.

“The fall in valuation of fintech players like Klarna has impacted valuations of most of the BNPL players in the US.

"Similarly, the crackdown by the Chinese government on sectors like edtech have impacted several start-ups in China.

"In India, we took a view that since some of the funding rounds have just happened and it’s too early to question the judgement of an investor.

"But we are closely evaluating the funding winter scenario,” added Junaid.

But Junaid warns of unicorns coming off the list more if start-ups do not start working on profitability.

“As an investor, I have observed that others too have started to focus on net margins.

"If a company, with a good valuation, while raising rounds gets marked down, will have a domino effect and others too will feel the pinch,” he shared.

Singh of Tracxn also agrees.

“Considering the funding slowdown in the start-up ecosystem and the reluctance of consumers to spend more, we expect a drop in valuations for more companies in the future,'' she told Business Standard.

Meanwhile, another report released by Hurun last month said that one hundred and forty nine new individuals joined the rich list club of 1,103 Indians across 122 cities who cumulatively accumulated a wealth of Rs 100 trillion. Bengaluru -based Kaivalya Vohra, 19, of grocery delivery application Zepto is the youngest self-made and the youngest rich individual.

The report found 1,103 Indians with a networth of Rs 1,000 crore each — an increase of 62 per cent over five years.

There are 221 billionaires (Rs 100 crore networth) in India on the 2022 list.