The Startup Bull Run Is Now Getting A Reality Check


Anecdotally, startup founders and management teams have pointed out that there is recurrent – if not constant – pressure from their investors to “show them the money,” often ignoring realities. Some startups have delivered, and many more have merged and closed up shop.

The COVID-19 pandemic was a globally destabilizing event. But not so much for India’s startup ecosystem. Lockdowns, fear of social interaction, extra time to work on passion projects and a host of other reasons worked together to awaken this dormant entrepreneurial spirit in hordes of Indians.

As of September 2022, India has over 78,000 registered startups – down from just 11,700 startups in 2019. In this third largest startup ecosystem in the world, 107 startups enjoy unicorn status – meaning they are each worth over $1 billion . Together these are estimated at $341 billion. 44 of these unicorns born in 2021 enjoy an overall valuation of $93 billion; 21 others have achieved unicorn status in the past 10 months, valued at $27 billion cumulatively. Four Decacorns were also born, each worth over $10 billion. The pace of growth has been nothing short of explosive, and that may be the problem.

The boom is somewhat reminiscent of what happened in the early 1990s. When dotcoms first appeared on the scene, they had quite a lot going for them. The first was the mass acceptance of a new technology: the computer. These machines found a place in almost every home and office. In today’s world, the smartphone has a similar story: most people own at least one, and many more are on the way to getting one.

Internet access has also increased exponentially in India; In January 2020, the Supreme Court declared internet access a fundamental right. A sharp drop in data prices in recent years has fueled this increase in penetration and improved access. Coincidentally, improved and cheaper access to the Internet was also a phenomenon when the dot-com boom took off.

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Time and opportunity weren’t the only bones the pandemic threw at Indian entrepreneurs. The economic impact of the COVID-19 pandemic forced the RBI to cut interest rates to stabilize the economy and rebalance growth. Banks have been encouraged to lend to fuel consumption-led growth. This resulted in easy access to funds for a number of aspiring entrepreneurs who had an idea to sell and the will to sell. A global policy of easy money ensured a strong inflow of foreign capital into the startup sector.

From $11 billion in 2020, investment in Indian startups nearly quadrupled to over $42 billion in 2021. Much like the exponential explosion of investor money in the dot-coms that erupted in the US in the early 1990s Mushrooms shot out of the ground.

Just like in the US in the early ’90s, there’s a chance that much of this massive investor interest is being fueled by FOMO (Fear of Missing Out), a nagging sense of “they know something we don’t.” This has allowed many startups to throw money at users – spend massively on advertising and promotions aimed at increasing brand equity, sometimes even at the expense of developing a quality product or reliable service.

This tide is slowly turning. Of course, no investor will ever say it is, but anecdotally, startup founders and management teams have hinted that there’s recurrent — if not constant — pressure from their investors to “show them the money,” often without regard to who they are realities in reality process. Some startups have delivered, and many more have merged and closed up shop.

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Investors have since turned cautious, and as the funding winter sets in, startup growth rates are being hit. Only USD 20 billion of funding flowed into Indian startups in the first 7 months of 2022 compared to USD 42 billion in 2021. This is reflected both in the key performance indicators and in operation.

Since early 2022, startups have laid off thousands of employees to cut costs and shut down non-core or underperforming industries. Layoffs have been announced at startups big and small, from Vedantu to Ola and Cars24 to Meesho. Indian Edtech’s flagship Byju’s has also felt the heat. The company has announced that it is laying off over 2,500 employees after reporting that its losses rose to Rs 4,500 crr in FY21.

Names like Peppertap, Freshconnect, Zebpay, Jabong and Stayzilla have disappeared entirely, and even unicorns like Ola and Zomato have scaled back their operations — Ola shut down its used car business and Zomato shut down its grocery delivery pilot. Again, this is a trend that played out when the dot-com boom began to be viewed more as a sound and light show. Once familiar names like AltaVista,,, Ask Jeeves that received princely reviews and endorsements from some of the biggest corporate players are now a memory.

The quick exit hoped for by many investors only worked in a few cases – but even in many cases the investors who later bought up have the bag in their hands. As of 2021 and 2022, IPOs of eleven Indian startups have hit the market. Some were among the largest IPOs in Indian corporate history. But few of them have given retail investors anything more than temporary pleasure — most of them are trading well below their market price.

This is not to say that the start-up space in India is in dire straits. According to PwC India, although startup funding hit a 2-year low of $2.7 billion in the July-September quarter of 2022, sentiment among early-stage investors is still relatively upbeat. Two startups even achieved unicorn status during the quarter. But as the report goes on to say, “Fundraising is just an achievement, not a milestone…it doesn’t guarantee great execution, which is the secret ingredient to startup success.”

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However, one cannot help but notice the similarities between what is unfolding in the Indian start-up space today and what was happening when the dot-com bubble burst over three decades ago – an explosion of gamers driven by fast bucks, incremental ideas driven by fashion trends, an expansion frenzy that quickly overheats, a disentanglement that is slow and painful, and a shakeout that forgets names.

A lucky few lingered, but they still had a long way to go as they attempted to regain their former glory.

Today, for India, starting up is a matter of pride, which is taken as a testament to the Indian entrepreneur’s solution-oriented approach to problems. Your spirit of innovation, chutzpah and willingness to take risks will be put to the test. Those with a clear business model, strong ability to execute, and financial discipline hope to weather the storm.

Data entry: Yoosef Kutteparambil


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