The ongoing liquidity crunch in the private market will compel a large number of Indian unicorns to become profitable in the next 18-24 months, according to Sequoia India Managing Director Rajan Anandan.
"The first thing to keep in mind is the narrative, in many ways the reality, is that a large number of the unicorns are unprofitable. In 24 months, we will be shocked at how profitable they are going to get," he said at the inaugural session of TieCon 2023 in Delhi.
"Today, if you want to do an IPO, you have to be single-high digit EBITDA... If stock-based compensation is out of whack, then forget it," he added.
Anandan said that a large section of late-stage startups had raised massive rounds of capital in the 2021-2022 period, and have sufficient runway to go on for the next 4-5 years as they move towards profitability. He also remarked that all the discounting by tech startups to grow fast in terms of traction has stopped now.
As a result of Covid-led digital adoption, Indian startups raised more than $35 billion in venture capital funding in 2021, up from $14 billion in 2019 and $10 billion in 2020.
According to Anandan, the amount of venture capital raised by startups in the country is expected to be around $2-2.5 billion in the first quarter.
"That's a $10 billion run rate... 2021 was a year of exuberance pretty much in any asset class... There's a trend line to everything and what we will see this year is us getting back to a trend line between $10-15 billion, it's still as significant growth, compared to under a billion dollars in 2010," he added.
With the interest rate regime getting tightened last year, funding for tech companies dropped and valuations fell off the cliff.
Moneycontrol reported earlier that India has not seen a new unicorn in the last six months, the longest drought in seven years, in what is an indication of the unicorn frenzy dying with the much-talked-about funding winter tightening its grip on valuations of technology startups globally.
Molbio Diagnostics was the last company to achieve unicorn status in September 2022, after raising $85 million from Temasek and Motilal Oswal Alternates at a valuation of $1.53 billion, according to data by Venture Intelligence.
At the technology startup conclave on March 17, Anandan also said that early-stage funding activity was back on track. However, he said that valuations in the early stage space had tempered down from the highs of 2021 and were now back at 2019 levels.
Anandan also said that deeptech and hardtech startups, which combine software chops with hardware innovation, have started to garner more interest in terms of venture capital investments.