Future of 20% of Indian Unicorns uncertain finds Redseer

Startups' strive for profitability as investments plunge by 70% in FY23, according to a RedSeer report. 1in 5 struggling unicorns could pivot to new models, get acquired, or close entirely by FY27.

The Indian startup ecosystem picked up quite the steam last year. Startups secured a funding of $50 billion dollars in FY22. However, the funding momentum has dwindled by 70 percent to $15 billion, a report by strategy consulting firm RedSeer found out.

The report, titled 'Path to Profitability', says Indian start-up world is truly in the midst of a funding winter. An 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 contributed to the decline in funding, observes Mohit Rana, partner, Redseer.

Given the funding situation, the analysis says startups are now focusing on becoming profitable while reducing burn rates.

In recent times, prominent startups like BYJUs, Unacademy, Swiggy, SUGAR Cosmetics, Zomato, among others, have spoken extensively about their ambitions to turn profitable in the near future.

RedSeer say that, out of the surveyed 100 Indian unicorns, about 50 percent are expected to become profitable by FY27. It projects the number of to grow from 30 in FY22 to 55 in FY27.

However, about 20% of these unicorns are likely to struggle attaining profitability. The report points out that some of the struggling unicorns will pivot to new models, get acquired, or close entirely by FY27.

Many of these companies are expected to see funding changes, a drop in valuation, and a move to a much lower growth trajectory in the coming years.

RedSeer also predicts that profitable unicorns could generate about five times the profit in FY27 as they did in FY22.

The top four sectors expected to drive the highest pool of profit in the coming years are FinTech and financial services, B2B, SaaS, and eCommerce.

The report highlights EBITDA margins of PolicyBazaar, Delhivery, PayTM, Zomato, and CarTrade. All of theselisted companies have significantly brought down their losses each quarter. Cartrade has managed to become profitable in Q2 FY23.

PolicyBazaar reduced losses by cutting down on customer acquisiton related marketing expenses. PayTM expanded into new business verticals while Zomato increased its take rates for restaurant partners and customers.