About 25 to 40 percent of Indian unicorns will struggle to survive during the current bust cycle and will eventually shut down owing to foolish business models and negative unit economics, according to Naveen Tewari, Chief Executive Officer (CEO) of InMobi.
“You will see probably 25 percent to 40 percent of the existing unicorns will just go away in this phase,” said Tewari in a recent episode of Bits to Billions.
According to Tewari, a major issue with several Indian unicorns is they have foolish business models. He said, “You cannot have a business model saying I want to give you something worth 100 rupees for 80 rupees, please come and get it. Oh, I just built a billion-dollar business. That's not how it works.”
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Tewari believes such unicorns might become zombie unicorns and eventually shut down because there is little left to be bought by somebody if they are unable to fix the unit economics issue. Zombie unicorns are those that have some cash left to survive so they don't want to shut down, but aren't functioning fully, either.
He added, “Nobody's gonna fund business models which are going to have this ridiculous, foolish distribution of money, it's not happening.”
Tewari’s comments follow a series of layoffs, restructuring, and shutting down of startups as the ecosystem faces a funding winter and founders try to cut down on cash burn.
Tewari believes due to a scarce capital availability founders will have to rethink their business models to survive the much-talked-about funding winter. He said, “There's no more capital, so good entrepreneurs are going to have to change their models and figure out how can they get to positive economics.”
Tewari added, “It still seems like a short-term issue. But it is like you have to fix it and you have to fix it today. ”
With neobanking platform, Open’s fundraise in May, India reached the milestone of a hundred unicorn startups. Currently, the number stands at 103, with edtech company PhysicsWallah, online beauty products marketplace Purplle and Sales automation software-as-a-service (SaaS) platform LeadSquared joining the list.
So far in 2022, India has seen 19 new unicorns. This is on the back of a blockbuster 2021 when the country saw as many as 44 unicorns getting minted with investors pouring billions of dollars.
“I am excited about the first phase of creating 100 unicorns by our country, of the big exuberance and the big ambition that we hold. But I think the downturn, in reality, makes it clear who is going to survive, who is going to thrive,” said Tewari.
Tewari’s InMobi, a mobile advertising technology company founded in 2007, became India’s first unicorn in 2011. He is also the founder and CEO of another startup, Glance, a software company personalising smartphone lock screens, that joined the coveted unicorn club in December 2020.
He said that while both the businesses are generating cash and have a strong business model, the recessionary environment will impact them too.
“Nobody gets a free ride out of this. The impact would be we may make less money than we made. I will tighten the screws a little bit here and there. But I don't have to take people off the bus. I don't have to do any of those things,” said Tewari.
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