Some startups may lose unicorn status

The PE multiples have come down in the public market. Multiples have come down because of the current situation. So, unicorns that are based on high multiples, those are in question now. As a result, some unicorns may not be unicorns anymore, while others may still remain so

- Dinesh Goel, Partner at PE fund, Siana Capital Management, tells Bizz Buzz

Bengaluru: India may no longer be the home of 100 unicorns as fund managers are of the opinion that many of the unicorns have lost the prized title owing to significant reduction in valuation owing to the funding winter.

Unicorns are those new age startups which have a market cap of $1 billion or above. Last year, the country became home to 100 unicorns on the back of series of fund raising in 2021 and 2022. However, with funding winter setting in, many of these startups are not able to raise further capital from private equity (PE) and venture capital (VC) funds.

“Multiples have come down because of the current situation. So, unicorns that are based on high multiples, those are in question now. The PE multiples have come down in the public market. As a result, some unicorns may not be unicorns anymore, while others may still remain so,” Partner at PE fund, Siana Capital Management, Dinesh Goel, told Bizz Buzz.

“Those which are still unicorns are for two reasons. Firstly, their fundamentals are solid for which they deserve high multiples. Secondly, companies which are multi-billion dollar companies still remain as unicorns despite the fall in valuation,” he added.

Among the unicorns, seven are in edtech space which are first to lay off staffers in large numbers. Byju’s laid off more than 2,500 employees, while Unacademy fired about 1,500 of its employees in the last 12 months. Similarly, upGrad had laid off around 150 staffers.

So far more than 22,000 staffers have lost their jobs with about 75 startups cutting employee count. In many cases, these layoffs have been undertaken by several unicorns.

According to a joint study published by Bain and Indian Venture and Alternate Capital Association (IVCA), funding for Indian startups dropped to $25.7 billion in 2022 as compared to $38.5 billion in 2021 as global economic slowdown loomed. Private equity and venture capital funding fell 60.5 percent to $6.64 billion in January-March period of this year from $16.8 billion a year earlier.

Despite such funding dearth, not a single unicorn has not undertaken down round. In startup parlance, a down round happens when a startup raises money lower than its earlier valuation. According to reports, India’s most valued startup Byju’s is planning to raise $700 million at a flat valuation in coming days.

Sources in the know said that funding dearth is likely to subside from early next year as many PE and VC funds are sitting on cash without any deployment. As macroeconomic indicators turn around, fund flow is likely to come back in 2024.