Decline in Unicorns: What has Troubled the Indian Startups in 2023?

The Indian startup ecosystem has experienced a significant slowdown in recent times, as indicated by a research report released on Tuesday by Hurun Research Institute. The report, known as the ASK Private Wealth Hurun Indian Future Unicorn Index 2023, reveals a sharp decline in the number of new unicorns being added to the Indian startup list. 

In 2023, India witnessed the addition of only three unicorns, compared to a remarkable 24 in the previous year. This decline has raised concerns about the overall health and vitality of the startup sector in India.

The Slowdown in India's Startup Ecosystem

The research report points to a distinct "slowdown in India's startup ecosystem," shedding light on the challenges faced by the sector. One significant factor contributing to this decline is the drop in investor interest, often referred to as the "funding winter." Investors are becoming more cautious and selective, leading to a decrease in the number of startups receiving substantial funding. As a result, the pace of new unicorns emerging has considerably slowed down.

Furthermore, the total count of unicorns in India has also witnessed a decrease, dropping from 84 in the previous year to 83 in 2023. This trend reflects a shift in the dynamics of the startup landscape, highlighting the need for a closer examination of the factors influencing this downturn.

In a recent report released on Tuesday, it has been highlighted that new additions to the unicorn list have witnessed a significant decline in 2023, indicating a slowdown in the Indian startup ecosystem. This article aims to delve into the reasons behind this decline and its impact on the overall entrepreneurial landscape in India.

Decrease in Unicorn Additions: An Indicator of Slowdown

According to the ASK Private Wealth Hurun Indian Future Unicorn Index 2023, India has only added three unicorns in 2023, a substantial decrease from the 24 additions in the previous year. This decline in unicorn additions is seen as a reflection of the current slowdown in India's startup ecosystem. The report also mentions the prevailing "funding winter" and the decreasing investor interest as factors contributing to this slowdown. Furthermore, the total number of unicorns has dropped to 83, down from 84 in the previous year.

What has troubled the Indian startups in 2023? 

Rajesh Saluja, the Chief Executive and Managing Director of ASK Private Wealth, acknowledges that unsustainable business models adopted by startups have led to a dip in valuations. However, he emphasizes that funding to the right companies continues despite this trend. Saluja remains optimistic about the startup ecosystem, stating that sustainable and viable businesses will still attract funding.

What is the future of the Indian Startup Ecosystem?

Anas Rahman Junaid, the Chief Researcher at Hurun India, expresses confidence in the potential of the Indian startup story. He envisions the number of unicorns in India reaching 200 within the next five years. Junaid draws a parallel with China, which already boasts over 1,000 unicorns. He believes that for India to achieve economic growth, nurturing startups will be crucial. In 2023, the list features a total of 147 startups valued at over $50 million, compared to 122 in the previous year.

“Rising interest rates and global uncertainties have dramatically reduced the appetite of investors to put money into startups in the past half year. The slow-down in the economy has been tough for certain companies, with almost 20% of last year’s Gazelles / Cheetahs either dropping off the list or being downgraded. Hurun Research believes these companies could take could no longer go unicorn within three years. Rising interest rates and geopolitical headwinds have combined to make it harder for startups to raise capital,” Junaid said. 

Fluctuations in the List: Drop-offs and New Additions

The report reveals that 18 companies dropped off the list in the past year. However, there were also over 40 new additions. Saluja notes that the overall funding to startups on the list has grown by 6% to $18.8 billion. These findings indicate that while some companies may face challenges, the broader Indian startup ecosystem remains attractive to investors. Saluja highlights the high interest among high-net-worth individuals to invest in funds that are subsequently deployed in startups. Notably, the time required to raise a fund of Rs 1,000 crore has reduced from a year to less than four months.

Key Investors and Startup Hubs

Peak XV Partners, formerly known as Sequoia, emerges as the biggest investor with stakes in 37 unicorns, according to the report. Additionally, Bengaluru continues to retain its status as the startup capital of India, being home to 53 probable unicorns. This reaffirms the city's reputation as a thriving hub for entrepreneurial endeavors.

Young Entrepreneurs and Employment Opportunities

The index features Kaivalya Vohra, the twenty-year-old co-founder of quick commerce startup Zepto, as the youngest co-founder. It is noteworthy that the 147 companies listed in the index collectively employ over 1.02 lakh people, indicating the significant employment opportunities generated by the Indian startup ecosystem.

The decline in new additions to the unicorn list in 2023 serves as a crucial indicator of a slowdown in the Indian startup ecosystem. While challenges related to unsustainable business models and decreasing valuations persist, there remains optimism about the potential for growth and the emergence of sustainable startups. With continued funding, the Indian startup story can overcome these obstacles and pave the way for a thriving entrepreneurial landscape in the future.