Less than 50% of Indian unicorns will end up making money for their investors: A91 Partners’ Abhay Pandey

Abhay Pandey, general partner, A91 Partners

Of 107 Indian unicorns less than 50 percent will end up making money for their investors according to Abhay Pandey, General Partner of A91 Partners, at a time when late-stage private equity and venture capital deals continue declining.

“We will see many of these companies become very shrunken versions of themselves, some of them might end up being zombies, and some may have a business model that might work for the founders but the investors will not make any money from them,” said Pandey, speaking during a panel at TiEcon Mumbai, on June 2.

Zombie startups are unicorns that lack a strong business model and hence stop growing but also refuse to shut down, becoming irrelevant eventually.

Pandey added that while many companies are promising to break even in the next year or so, they do not realise that breakeven is not the end goal.

“Breakeven is still zero, you need to start from there and generate real margins, real profits and real cash flows, and that’s a very long road ahead. It is clear for growth stage investors as well,” Pandey said while speaking to Moneycontrol’s Chandra Srikanth.

“Unfortunately for many of these companies, it might be a little too late because these have become big, large organisations and it's not so easy to turn the ship around,” he added.

According to Pandey, venture capitalists are aware of the issues looming over many Indian unicorns, resulting in a lower appetite for funding deals in the late stage.

To be sure, in the first five months of 2023, startups in the growth to late stage secured $2.75 billion in funding across 105 deals against a five-month average of $8.9 billion across 189 late and growth-stage deals in 2022.

The VC highlighted that the fall in such deals could be partly because many startups have raised huge amounts of capital during the funding boom in 2021, and they might not need funds currently.

“However, a lot of companies are also unable to raise funds at their desirable valuation, because of which they are delaying any planned fundraisers,” he added.