Record drop in future unicorns as funding winter, regulatory actions bites startup valuations

There has been a record drop in the number of future unicorns, with 25 startups slipping out of the list because of funding winter, actions by financial regulators and also a bias towards profitability of ventures, a report said on Thursday. The number of unicorns — startups valued at over USD 1 billion — slipped by one to 67 in 2023. The unicorns had grown by three to 68 last year, as per the ASK Private Wealth Hurun Indian Future Unicorn Index.

There were "record dropouts" in future unicorns at 25, including five companies valued at over USD 500 million that were likely to turn unicorn in three years (called gazelles) and 20 entities valued at over USD 200 million likely to turn unicorn in five years (called chettahs), the report said.

The country is now home to 67 unicorns, 46 gazelles and 106 cheetahs, as per the list. It also added that there were 38 new entrants to the list, including seven gazelles and 37 cheetahs.

ASK Private Wealth's Chief Executive and Managing Director Rajesh Saluja said the startup valuations were hit by the ongoing funding winter, which has seen a slowdown in bets as the higher interest rates pulls investors to fixed income.

There were also other issues, including regulatory actions by financial sector watchdogs, which put question marks over some fintechs' valuations like in the buy now pay later (BNPL) segment and also growing insistence on profitability by the external investors, he said.

Hurun India's Chief Researcher Anas Rahman Junaid said the uneven consumption growth may also have impacted valuations in some cases.

Venture funds are preferring to hold on to cash due to lack of sufficient opportunities, Saluja said, adding that the industry is witnessing only 35-40 per cent of committed amounts being drawn down for bets on companies by funds.

However, higher play by high networth and ultra high networth families has helped minimise the impact of funding winter on the ecosystem, Saluja said, adding that 2023 saw USD 8 billion investments in startups as against USD 38 billion earlier.

Peak XVPartners continues to be the most active investor in the list with 47 bets, while Anand Chandrasekaran is the leading angel investor with stakes in 20 future unicorns, it said.

The report said 35 Indian future unicorns have overseas headquarters, which includes 31 in the US, two in Singapore, and one each in the UK and Vietnam.

Bengaluru continues to be the future unicorn capital of the country, being home to 46 such companies, and is followed by Delhi-NCR at 29 and 19 in Mumbai.