Mirage Of 100 Unicorns In India

In last couple of days there was a news in the Business world announcing that India now has 100 Unicorns!

Unicorn is a company (usually a start-up, but not always so) which achieves a valuation of $1 Billion.

This valuation is usually based on multiple rounds of investments by Angel Investors, Venture Capitalists and Private Equity players. In short, these are private funds and they invest money for a small percentage, thus increasing the overall valuation of the entire equity. For example, if I give you $1000 for 1% equity in your company, I am valuing your entire company (100% equity) at $100,000. Now if someone else pays $2000 for 1% equity in your company, he has valued it at $200,000! In doing so, the value of my 1% has also doubled.

How much did the company raise in total? Just $3000. But the company valuation has reached $200,000.

Now when there is easy money (excess liquidity due to very low interest rates) and that money is being invested in startups for a very small stake, the valuations can soar exponentially with each round of funding.

That’s what has been happening in case of startups across the globe, but particularly in India.

However, raising funds only indicates that the founders have got capital. What they use it for is the key. What should be the ultimate objective of a business? It should be to create value for its stakeholders. Stakeholders would include customers, employees, suppliers, society at large etc. There should be appropriate value creation for each of these stakeholder group. Finally, the value created for the last and the most important stakeholder group i.e. equity owners is by increasing the value of equity or by returning the money to equity owners by means of dividends.

Raising funds only tells us about raising capital. It doesn’t tell anything about value creation. And that’s why we need to look beyond catchy headlines of “yet another unicorn” and look at the value created by the company – the profits generated from the core business operations etc.

On this count most of the Unicorns struggle. In fact, only 23 out of 100 Unicorns are profitable. Here’s the list of 100 Unicorns and the profitable ones.

And the ones that are not profitable are not anywhere close to making profits. In fact they are burning cash at an alarming speed. Here is a glimpse.

Losses made by top Indian Stat-ups per minute:

Paytm – ₹ 60,069
OYO- ₹ 76,077
Swiggy – ₹ 25,347
Pb fintech – ₹ 22,995
Zomato – ₹ 4,876
Nykaa – ₹ 2,152.8

Some of these high-flying Unicorns, such as Paytm, Swiggy, Zomato, Nykaa, were listed on the stock exchanges in last 1 year and they were beaten badly.

Warren Buffett had famously said about the financial excesses that “You get to know who is swimming naked, only when the tide goes out”. It’s come true for the startups which got listed.

That’s why I don’t understand this hype about Unicorns. Yes, they got the funding and it’s commendable. So what? That’s not the ultimate test of valuing a business. But we seem to have forgotten the first principles of the business valuation – even the Government. I feel irritated when some idiot Minister or Govt cheerleader tweets about 100 Unicorns and links it to the success of Start-up India initiative which started in 2016. Furthermore he cites the number of Unicorns per year as evidence.

Unicorns in India by year:

1 2011
1 2012
1 2013
3 2014
3 2015
2 2016
1 2017
8 2018
9 2019
11 2020
41 2021
19* 2022

He then argues that most of the Unicorns happened after 2016. This is naive at minimum and cunning propaganda at the other end.

A start-up takes 4-5 years to come up to scale. Also one cannot ignore the excess money that was pumped in after COVID hit the world. That’s why you are seeing so many Unicorns (71 out of 100) after the pandemic hit us.

So there is nothing for the Govt to brag about it. Usually private sector does well in India in spite of the Governments, not because of them.


Does it mean that attaining Unicorn status is meaningless? Absolutely not. I’m not discounting that as a great achievement. However, it’s a useful milestone to become something truly great.

Amazon was running into losses for several years in the beginning…probably for a decade and half! And yet their valuation had been soaring, because they were able to grow exponentially, reinvest cash in fuelling that growth and, most importantly, create something really great along the way. And in due course they started making profits and became a Trillion dollar company!

Most of these Unicorns haven’t shown a credible business model yet which can deliver sustainable growth and profits in the long term. I would argue that their “valuation” is because of easy money. And the flow of easy money has now stopped or reversed with Fed increasing the rates (and hinting at further increases).

The tide has started going out. We’ll soon see who all were running naked!

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