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A third of India’s unicorns are healthy, but others need huge capital infusion. Will they get it?

All is not bad with the financials of Indian unicorns. At least a quarter of the country’s 100 unicorns are profitable or nearly profitable, going by the financial numbers they have reported. Here is a glimpse of unicorns’ financials.

Of about 80 unicorns which disclosed their FY22 financials, 13 have reported profits while 12 are on track to profitability. The financials of more than a dozen Indian unicorns, mostly US-registered enterprise IT and SaaS (Software as a Service) businesses are not available. Several of them, with more predictable cash flows, are likely to be profitable. So, this number could go up.

Meanwhile, late-stage investors including SoftBank, Tiger Global, Temasek, Prosus Ventures (formerly Naspers), and Alpha Wave Global have adopted a wait-and-watch approach. They hardly made any investment for about a year. Large startups, especially unicorns, are now being scrutinised for their ability to generate cash flow and the ability to sustain themselves. In the absence of easy money, they are challenged to demonstrate real and strong growth that is not propped up by huge spending on customer acquisition. This situation calls for a basic analysis on how they fare in terms of fundamentals.

What the numbers say

This analysis is based on the latest available (FY22) financials of private companies. FY23 results, which will start coming out in the latter half of this fiscal, will further separate wheat from the chaff.

The fund crunch that descended on these venture capital-backed large startups in early 2022 has persisted and put to test their financial health and sustainability. Several of them are staring at a decline in valuation and some are even forced to explore other strategic options.

Going by FY22 financials, about two dozen unicorns suffer 100%-plus loss margins or spend double of what they earn. The long funding winter would mean some of them would face a moment of reckoning in the short term. There is another set of around 30 unicorns whose loss margin varies from 20% to 100%. Many of them will need years to prove their financial sustainability. In other words, about 50-60, or a majority of Indian unicorns will still need a large capital infusion. Growth stage investments have dried up and the financial struggle is real for this large group of unicorns.

Further, in the absence of another bull cycle in the near term, a good chunk of them have to make important strategic choices. Some of them will shrink to survive while others may opt for a sale. A long bearish cycle could turn out pretty eventful with a bevy of strategic actions.

A handful of unicorns, meanwhile, saw their revenues shrink. Half a dozen unicorns have not filed their FY22 results yet. These are clearly not good signs. In essence, roughly a third of the unicorns are on a good wicket while others have to figure out their way ahead.

When it comes to startups, revenues and profits alone do not show their financial health. In several cases, interest income from the huge equity capital they raised would help them show better financials, but not for a long time. When fresh capital is scarce, such props are less available and profit or loss is more indicative of their direction. The other aspect to be taken into account is the revenue growth. Many startups managed to bring down losses by shrinking their operations. If profitability is at the cost of growth, their ability to reward existing investors will remain unclear.


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