The Indian startup story, which was flying high a few years ago, seems to be going down with only three unicorns added in 2023. Our unicorns, valued at $1 billion or more, are now down to 83 from 100, a few years back. Possibly, their business models were unsustainable and faulty. Even as they led to lesser valuations, they stressed the funding to the right companies. What is of bigger concern is the slowdown in investor interest or “funding winter” setting in. That said, revival will need several primitives to be factored correctly. We have a lot of catching up to do with our favourite neighbour China, which has over 1,000 unicorns. Even the projected 5 trillion-dollar economy will certainly depend a lot more on our startup ecosystem doing well.
However, not everything is lost. Though 18 companies dropped off the list last year, there were over 40 new additions. With the business rules easing up, the overall number of unicorns may even cross 200 in the next five years. The optimism is based on the fact that we have 147 startups valued at over $50 million in 2023 compared to 122 a year back. Further, ‘Hurun India’ says there are ‘Gazelles’ valued at over $500 million which are likely to turn unicorns in three years and ‘cheetahs’ valued at $250 million likely to turn unicorn in five years.
How are successful unicorns built? A combination of several key factors and strategies are required as each unicorn’s journey is unique. The ecosystem must foster innovation, collaboration, and employee growth. Attracting skilled professionals who are aligned with the company’s mission and values helps fuel their growth and success. It all starts with a groundbreaking idea or a disruptive solution that addresses a significant problem or untapped market opportunity. That needs new technologies, business models, and products that have the potential to revolutionize industries and create substantial value. The products must address global large-scale markets rather than niche segments. Early-stage funding is critical and many potential startups secure funding from venture capital firms, angel investors, or strategic partnerships, though the key is really effective utilisation of such funding. However, what is most crucial besides funding is the timing to enter markets. Emerging trends, technological advancements, or shifts in consumer behaviour help. Even strategic partnerships with established companies, leveraging their networks, resources, and expertise is important.
Many startups turn bad because the execution of their plans is faulty, with no clear vision or a well-defined strategy. The leadership team too may be found wanting with questionable domain expertise and no ability to navigate challenges. Of course, economic recessions have a significant impact on the startup ecosystem. Investors may become more cautious and risk-averse, leading to reduced funding for startups. Consumer spending may decline, affecting market demand and startup growth. Then again, certain startup sectors can become saturated with numerous companies competing for limited customer attention and resources leading to a slowdown.
Investing in the right sector is equally important. Sustainability, Clean Energy, Health-Tech, Telemedicine, Fintech, Digital Payments, E-commerce, Direct-to-Consumer (D2C) Brands, AI/ML, EdTech, Online Learning, Food-Tech, Ag-Tech, Cybersecurity and Data Privacy are all great areas though it’s important to conduct thorough market research, identify specific pain points, and develop a unique value proposition when considering a startup idea.
In spite of the best research and effort, many startups fail to reach unicorn status due to various factors, such as market conditions, competition, internal challenges, and execution gaps. While there is no one-size-fits-all approach, availability of funding, tax incentives and startup-friendly regulations, attract investments. Promoting entrepreneurship education, organizing hackathons, and supporting incubators/accelerators help develop a skilled talent pipeline. Availability of exit opportunities, such as acquisitions and initial public offerings (IPOs), provides a favourable environment for investors and entrepreneurs. This helps generate returns on investment, attracts further investment, and creates a positive cycle within the ecosystem.
Building a unicorn is a challenging journey, and setbacks and obstacles are inevitable. Successful unicorns exhibit persistence, resilience, and the ability to learn from failures. They adapt their strategies, pivot when necessary, and remain focused on their long-term vision.
Establishing programs that facilitate knowledge exchange, mentorship, and guidance is important. Our MBA programs must innovate and promote a culture of innovation, experimentation, and risk-taking. Celebrating entrepreneurial successes, showcasing role models, and providing recognition and rewards for innovation can inspire and motivate aspiring entrepreneurs.