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Zombie unicorns - Indian startups go from feast to famine

Money Control · 1y

Meesho, a prominent Indian e-commerce platform, saw its valuation surge to $5 billion in 2021, fueled by investments from major players like SoftBank and Fidelity. However, the once-thriving Indian tech startup landscape is now experiencing a slowdown. Concerns about corporate governance are looming large, causing investors to become more cautious in a volatile global market. Anand Lunia of venture capital firm India Quotient commented on the situation, stating that he hasn't witnessed a slowdown like this in the past five to six years, and it's expected to be challenging. He anticipates the rise of "zombie unicorns," startups that achieved unicorn status but lack viable business models and have halted hiring. Meesho is currently seeking to secure debt and reduce expenses after struggling to raise fresh funds of $1 billion. Investors have become wary of its monthly cash burn of $45 million and fierce competition. The challenges faced by Meesho are indicative of the difficulties ahead for many Indian startups. Plummeting Indian tech stocks are causing concern, and investors are intensifying their scrutiny of startups during due diligence, which is leading to funding delays. There are also worries that valuations in India are excessively high, even when startups are primarily driven by discounts and face bleak revenue prospects. This potential funding crunch could significantly impact the growth of Indian startups and lead to job cuts. To prepare for this uncertain future, companies are advised to maintain a sufficient cash reserve for at least 18 months and consider cost-cutting measures, including potential layoffs. The recent struggles faced by startups like BharatPe and Vedantu highlight the challenges in maintaining growth and profitability in the current environment. Investors are becoming more cautious and are emphasizing the importance of a clear path to profitability for startups. The message is clear: "Prepare for the worst and hope for the best."