The pandemic took a toll on Indian Startups, hundreds of which are handing out thousands of pink slips to employees to cut losses. Even big unicorn startups are no exception.
- Bleeding even before the pandemic, Indian Unicorns have been hit doubly hard with demand and liquidity crunch.
- The pandemic has knocked well-known startups like Ola, Paytm, OYO, BigBasket, Zomato, Swiggy down to their knees.
- Although India is the third-largest startup ecosystem in the world, but it also tops the list for failed startups
- Trends show that higher revenue increase has also resulted in higher net losses.
The hype around ‘unicorns’ in the startup ecosystem has been losing its sheen globally since before the COVID-19 pandemic rocked economies the world over. The near-bankruptcy of WeWork and the lackluster IPO (Initial Public Offering) performance of Uber in 2019 raised questions about the startup bubble being unsustainable. The story is not very different on the home turf too.
90 percent of Indian Startups fail within the first five years of their inception.
Reports suggest that some of India’s unicorns – a term used to define startups valued at more than $1 billion – had been bleeding losses even before Coronavirus-induced nationwide lockdowns ravaged production, demand, and liquidity.
Unicorns are Growing, So are the Losses
According to a 2019 Nasscom report, India added nine new unicorns to the list that year. These include logistics startup Delhivery, online grocer BigBasket, Ola Electric, gaming platform Dream11, eyewear retailer Lenskart, cloud-based contract management firm Icertis, trucking logistics firm Rivigo, business and productivity software firm Zoho, and data protection and management firm Druva. This places the total number of unicorns in India at 24, with a potential 52 more in the works.You will find more infographics at Statista
While that sounds promising, incidents like the distress sale of a popular e-commerce platform Shopclues indicate that the ground reality is not as rosy. Valued at $1.1 billion in 2016, the e-commerce venture was finally sold off for less than $100 million. The merger talks with Snapdeal gone awry dented Shopclues prospects gravely, causing its valuation to slump to $80 million.
The Shopclues debacle is not an isolated incident. Reports also indicate that the gap between revenues and losses for a majority of startups is fast closing in. The top 16 unicorns from India reported a collective revenue increase to Rs 23,119 crore in the financial year 2019. However, their collection net losses also rose to Rs 15,171.60. This means for 86 percent year-on-year growth, losses also grew by 80 percent.
Watch: Why 90 percent of Startups in India fail to sustain their growth
No Exit Route or Strategy in Place
The predicament of Indian startups is made worse by a general lack of an exit route or clear strategies for growth. Typically, investors rely on public listings as an exit route when putting money into startups. However, a close look at financial records indicates that even the unicorns in the Indian startup ecosystem are nowhere close to ready for IPOs.
Unicorn status and billion-dollar valuation does not guarantee survival. What matters is a resilient business model with a clear growth strategy.Deepak Kaistha, Founder and CEO, DKODING Media
Not even a single one meets the regulatory criteria of posting profits at least three years in a row. The problem is further compounded by a lack of a clear strategy for growth and expansion. In fact, ‘too much or too little innovation’ emerges as one of the top reasons why 90 percent of startups in India fail within 5 years.
In absence of a clear vision for growth and optimising revenues, a majority of India’s startups have been resorting to pivots – industry term for quickly changing business strategy – so often that their path completely diverges from the original vision, often with no new goals or milestones in sight. This deflection can quickly spiral out of control, and take the enterprise under.
The State of India’s Top Startups
The COVID-19 pandemic has further compounded the troubles of many Indian startups, who were already grappling with mounting losses and no clear models to grow their user base and revenues. Here is a look at losses incurred by some of the most well-known startups in India:
- Ola: The ride-hailing company was adversely hit by last year’s lockdowns, reporting 90 percent losses and firing more than 1,400 employees.
- Paytm: With competitors fast catching up in its core business model, the company posted losses to the tune of Rs 4,217 crore in the first quarter of 2020.
- Oyo: Trouble continues to mount for this budget hotel aggregator. As per unaudited financials, it incurred losses worth Rs 2,570 crore by the end of FY ’19.
- Big Basket: One of India’s unicorns suffered losses of Rs 348 crores in FY ’19 – double of what it reported a year before that.
- Zomato: The food tech startup also consolidated losses to the tune of Rs 2,198 crore by the end of March 2020.
- Swiggy: In the first quarter of 2020, Swiggy posted huge losses of Rs 2,363 crore.
Unless Indian startups find a way to evolve a business model that allows them to percolate their services to large populations living in tier II and tier III cities and the rural areas, losses will be incurred and growth is likely to remain stunted at best.
Table: Shaky Financials of India’s Startups
|CRED||52 lakhs||378 cr||360 cr|
|Khatabook||NIL||127 cr||126 cr|
|Big Basket||3787 cr||4411 cr||610 cr|
|Paytm||3281 cr||6226 cr||2942 cr|
|PhonePe||372 cr||2203 cr||1771 cr|
|Udaan||978 cr||3488 cr||2518 cr|
|Swiggy||2693 cr||6841 cr||3908 cr|
|Unacademy||65 cr||387 cr||301 cr|
|Cars24||2998 cr||3350 cr||285 cr|
|Dunzo||27 cr||360 cr||338 cr|
|Faasos||558 cr||1025 cr||446 cr|
|1MG||358 cr||687 cr||318 cr|