Profitable unicorns projected to grow from 30 in FY22 to 55 in FY27: Redseer
According to an analysis by the strategy consultants, ~50% of unicorns are expected to become profitable by FY27, while ~20% are likely to struggle due to regulatory challenges, plummeting demand, and unclear business models.
The number of profitable unicorns in India is projected to grow from ~30 in FY22 to ~55 in FY27, according to Redseer’s analysis of 100 unicorns.
The strategy consultants' analysis also states that ~50% of unicorns are expected to become profitable by FY27, while ~20% are likely to struggle due to regulatory challenges, plummeting demand, and unclear business models. Some of the struggling unicorns could pivot to new models, get acquired, or close entirely.
The Indian startup world has been on a roller coaster ride for the last few years owing to disruptions on a macro scale. While the startup ecosystem in the country experienced a sharp funding peak during FY22, totalling around $50 billion, a gradual onset of funding winter over the subsequent quarters led to a 70% drop in FY23 to $15 billion, says the analysis.
Drawing a comparison between private unicorns and publicly listed companies valued over $ 1 billion, the Redseer analysis states that there are about 100 unicorns and less than 400 public companies with a market cap of over $1 billion.
Tech has an outsized impact on the economy and there is a tendency for overvaluation in the startup world, Redseer points out.
Speaking at the 8th edition of the Ground Zero summit, hosted by Redseer Strategy Consultants, Mohit Rana, Partner at Redseer, explained how Indian startup funding managed to pivot towards profitable growth and what's in store for the future.
The 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 been the challenges for sustained funding. Consequently, startups are focusing on expediting their path to profitability and reducing burn rates, said Rana.
As startups sail through rough waters, Rana said boards need to ensure future alignment and take more responsibility to guide and support founders during challenging times.
Based on analysis of 98 unicorns as of FY22, Source: Redseer
“Listed tech companies have made significant improvement over the last five quarters," said Rana.
"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," he added, drawing parallels between listed tech companies in India and their global peers.
He also 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.”
The analysis predicts that profitable unicorns in India could, in FY27, generate 5X the profit 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.
During the same period, Redseer expects a decline in losses made by companies. However, many of the negative margin companies are expected to see funding changes, a drop in valuation, and a move to a much lower growth trajectory.
“Many players are focusing on increasing their share of the digital ads market, which has a significant opportunity to drive revenues," said Rana.
On reducing costs, he said, “Players can further reduce customer service cost while maintaining a high CSAT (customer satisfaction) score, only 10% of companies have optimised their spend while maintaining a good CSAT."
Edited by Swetha Kannan