Experts talking about Startups, the Bubble Is About to Burst

India is amongst the top five start-up ecosystems in the world. According to the India Venture Capital Report 2021 published by Bain and Company, the number of cumulative start-ups has grown at a CAGR of 17 per cent since 2012 and crossed 1,12,000 by December 31, 2021. Start-ups have emerged as key drivers of economic growth and job creation, and are often a catalyst for radical innovation. Now India is home to 79 unicorns, with a total valuation of $260.5 billion, which makes it the third largest after the US and China. Out of the total, 42 unicorns with a total valuation of $82.1 billion emerged in 2021 alone, a record year for the country.

Startup valuations are rising thanks to ample capital availability, limited investments with strong yield and related issues. Startups have created immense value for founders and investors alike. The accelerated development of the start-up ecosystem needs significant funding and therefore the role of venture capital and angel investors are critical. There are 32 start-ups founded after the year 2000 and have the potential to turn into unicorns in two years and 54 Cheetahs - potential unicorns in four years.

It is also true that a few highly successful start-ups with astronomical valuations and a few spectacular failures get discussed disproportionately creating the perception of a funding or valuation bubble. Overall, the venture capital asset class has done well for its investors who understand and provide for the high-risk nature of these investments. India has emerged as one of the world's top hubs for startups. With large-scale support from investors and the government, a large number of startups have gone on to become unicorns.

However, volatility in the market amid rising geopolitical tensions and the ongoing pandemic has dented the growth of startups. One 97 Communications (Paytm), FSN E-Commerce (Nykaa), Zomato and PB Fintech (Policybazaar), who together commanded Rs 3.58 lakh crore in market value on Day 1 of their listings, Investor losses in Paytm, Nykaa, PB & Zomato mounted to Rs 1.3L cr since Day 1. Investor earned money is at all time risk, as earnings misses, supposedly rich valuations and a sharp fall in technology stocks globally sent shares of a few new-age companies tumbling on Dalal Street. Secondly, there are several Unicorns bleeding, Oyo loses Rs.76,000 every minute, Paytm is losing Rs 60,069 every minute during the period, whereas Swiggy is at Rs.25,000 and Zomato is facing loss of Rs 4,876 per minute. The report shows PB Fintech is losing Rs 22,995 every minute and we have seen Mobikwik is also losing Rs 2,147 per minute.

It shows most of the Unicorns are losing revenue. Now the question is, who is responsible for this higher valuation and the investors are raising voice to the authority approves it. As per PGA Labs, India may add 45 startup unicorns in the next 12-18 months and has raised concerns over investing in loss-making companies. It expresses like, “Turnover is vanity, profit is sanity, but cash is reality,”. There are suggestions that investors chasing new-gen loss-making IPOs at crazy valuations should realise that many of them may never make profits nor exist with relevance.