Valuation Shift: Startups Start to Lose Their Unicorn Status

MUMBAI: The landscape for Indian startups is shifting as the unicorn label becomes increasingly elusive. At least 10 startups have lost their unicorn status since 2024, according to data from Tracxn. This change is attributed to a combination of factors, including a surge in AI investments drawing foreign capital to the U.S. and a reevaluation of business valuations in the current market.

Valuation Reset Amid Changing Investor Sentiment

Siddarth Pai, founding partner at 3one4 Capital, noted that the funding environment has drastically changed since the Covid-era boom. The era of zero interest rates has ended, leading many investors to park their funds in U.S. treasuries for higher yields. As a result, risk capital is increasingly focused on AI and related sectors, leaving non-AI companies struggling to attract investment. “Investors have been marking down valuations of companies to the new business reality,” Pai stated.

Recent funding rounds illustrate this trend. Slice, now a small finance bank, recently raised $100 million in a down round, with its valuation plummeting to approximately $450-$470 million, a nearly 70% drop from its peak of $1.4 billion in 2022. Investors are now evaluating Slice as a banking entity rather than a fintech startup. Similarly, in the edtech sector, Unacademy was acquired by rival upGrad in an all-stock deal valued at just over $200 million, reflecting a staggering 94% decline from its peak valuation of $3.4 billion in 2021.

Focus on Fundamentals and AI Investments

Private market valuations are normalizing after the inflated valuations seen during the last funding cycle in 2021. Investors are now prioritizing fundamentals, growth efficiency, and profitability, especially following pushback from public markets. Anup Jain, founding partner at BlueGreen Ventures, pointed out that the withdrawal of several mega IPOs, such as PhonePe and Zepto, due to valuation mismatches, underscores this shift.

A significant portion of the capital being raised is now directed towards AI funding. Accel’s new $550 million fund, set to begin deploying capital next year, will have a strong focus on AI. Jashank Pohani, head of family office relationships at Artha Group, remarked on the current market conditions, stating, “What we are living through now is the hangover. Companies raised on vanity metrics; the real numbers never caught up.” He added that investors are now scrutinizing whether previous funding rounds were justified based on actual performance rather than narratives.

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