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A Hundred Unicorns..........

Writer's picture: ShekarShekar

What to make out of the Indian startup ecosystem and its hundred unicorns.



India announcing its 100th Unicorn brought a sense of jubilation to the cheerleaders of the Indian startup ecosystem. Several articles have been written, eulogising the contribution of these companies, from job creation and driving innovation to making brand India an attractive destination for investors.


While there is merit to this line of thought, let us take a closer look at this ecosystem.


Firstly, the diversity of innovation. 90% of the unicorns fit into five broad categories based on the nature of their business.


With a third of unicorns to its credit, e-commerce leads the pack. The value to the consumer seems to be convenience and choice. The large scale viability of this category in India is still a suspect – with high logistics costs and indiscriminate returns, leading players like Bigbasket and Flipkart continue to make huge losses.


The second category is Fintech with a 27% share of unicorns. From payments, lending, neo-banking and crypto, these startups have built their story on aggressive customer acquisition in a business environment that thrives on the grey areas of regulation. While regulatory changes are a risk, the lack of a profitable business model is what can derail this story. With a 65% value erosion in the last six months, Paytm is a classic example.

Too much focus on these two categories begs the question - how much real value is there in aggregation and trading ?

Logistics (14%) Digital content marketing / distribution (12%) and Ed-Tech (7%) make up the rest of the 90%.


Logistics has within it the last mile delivery operators like Swiggy, Dunzo and Zomato. It is very evident that the business models of the last mile operators are neither commercially viable nor operationally sustainable. Like Paytm, Zomato also suffered a 65% value erosion in the last six months.


Edtech is largely driven by the need to excel in competitive entrance exams for college admissions, driven by the need to get gainfully employed. Edtech has a peculiar problem. The “Consumer” is the student / child, but the paying “Customers” are the parents; the “Custodian” is the school and “Curriculum” comes from the Board. There was a temporary demand spurt for online schooling due to covid, but now these startups are seeing declining interest. With NEP coming in and millennials’ preference for gigs, the jury is still out on this one.

Smart people do not make the same mistake twice. Really ?

Perhaps the problem is best explained by looking at Ola. The company has been on a continuous pivoting mode. Started as a ride sharing platform, it tried Ola food (cloud kitchens), Ola money (fintech), Ola used cars resale etc. And now its latest attempt, Ola electric scooters has so far been disappointing. With delivery issues and malfunctions leading to accidents and a slew of senior leadership departures, it is not clear where the company is headed.


Is it all falling apart, is the future of startups in India all gloom and doom ? Not really.


There is something fundamental that needs fixing, that’s all.


The beginning and end objective of the startup ecosystem currently seems to be in pitching to investors and securing funds at illogically high valuations. Access to capital (at attractive valuations) becomes the only focus area for founders, to a point that not getting funding at the desired valuation implies that the founder is a failure. The content and popularity of Shark Tank India is a good example of this malaise.


Where are those bright founders who initially set out to creatively solve a real problem ? We have Zoho & Zerodha as great examples of boot strapped unicorns. We need more startups like those. Founders have to think about the long term and be ready to put in the effort. Relying on pitch and valuations alone will not go far.


The focal point has to shift back to what is important – the business. The problem that is being solved, who will pay, why and how (business models) with a clear mapping and analysis of the value stream to show how the company will make sustained profits.


As for the investors – it might be “money come easy and money go easy” or “we have a few bad hits but our portfolio is still strong” story. However, too little focus on business models and profitability, too little oversight on the company operations and controls, lack of active engagement with founders etc are all recipes for disaster. And we have enough examples of things gone wrong.

A loss making small business will make more losses at scale. Unless the business model changes at scale - but then Indian customers are smart - stickiness and loyalty are alien to them. And extracting revenue from them is not easy.

If the startup has strong business fundamentals, profitable unit economics and the patience to stay focused for the long term, investment & valuations will eventually come by. But just because large and well known names have invested hundreds of millions, there is no guarantee of the value sustaining or the business surviving.


Its elementary, my dear Watson. Sherlock Holmes never said it, but that is what it actually is.

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