The Indian Startup Economy has witnessed around 100 Unicorns but only 23 of them are profitable. Over the last three months, many startups like Vedantu, Unacademy, Furlenco, Meesho, and Cars24 have laid off thousands of employees. Most of these startups are heavily dependent on funding for their survival. Many popular investors like Softbank, Tiger Global, and Sequoia Capital have pulled their funding from Indian Startups leaving them all high and dry.

So, What triggered this ‘funding winter '? Let’s find out.

Startup Pomp & Show

The loss of Indian startups is mounting and it is difficult for them to be profitable in the coming years. Still, they managed to raise huge funding and many of them even turned into unicorns. So, what swayed the investors? Well, most of the startups flaunted their Daily active users and Gross Merchandise Value (GMV). The trick to increasing daily active users is giving cashback and discounts. Gross Merchandise value is the value of goods sold from an e-commerce site. Do not confuse GMV with revenue. If you order a book of Rs. 500 from Amazon, then GMV is 500 but revenue for Amazon is the commission and listing fees that are paid by the seller. So, Revenue is just a part of GMV.

Therefore, neither high daily active users nor GMV promised sales and profit. And, users shift once the site stops offering cashback. Still, most startups got their funding just because of these two parameters.

The Paytm Fiasco

When Nykaa got listed on the Stock exchange, it reaped huge listing gains for public investors. At that time its PE was a whopping 1600! This means people were ready to pay Rs.1600 for every Rs. 1 earned by the company. After that, Paytm got listed. It fell 27% on its first listing day. Now, it has nosedived from Rs.2150 to Rs. 630. That's it! Paytm was a reality check for Venture Capitalists. After this, the valuation of many startups started to fall, even Nykaa. Most of the VCs incurred billions of losses in this reality check. This ended the pomp & show of Daily active users and GMV. Now, investors started looking at the more meaningful parameters i.e. Profit & Sales. This led to a funding winter for most of the startups that were breathing on funding and have not started generating profits.

Zombie Unicorns

Many startup Unicorns are turning into Zombies! This means that they are continuously raising funds but their business model is not good enough to show actual growth. For example, Meesho had raised billions of dollars from VCs, giving it entry into the unicorn club. But, soon the startup is going to be a zombie unicorn. People will not stop using Meesho but there would also be no actual growth of its own. Investors have pulled their funding and now the company is shifting towards raising debt to survive. It is not just Meesho, but many startups are going to turn zombies.

Is this just the beginning?

Due to a funding crunch, laying off is a cost-cutting strategy. And, this is just the beginning. The objective of these VCs is to invest at an initial stage in a startup, wait for its valuation to rise, and sell it to another. Till now, the stake of startups exchanged hands when these VCs found a greater fool who would again be swayed by the pomp & show. But, this bubble has burst now. In the coming years, startups would be valued at more reasonable valuations by looking at corporate governance, sales, and profit. So, we could expect more correction in the Indian Startup Economy.