Credit Suisse Anticipates an Essential Breather for India’s Unicorn Community
- ByStartupStory | March 23, 2023
According to a report by Credit Suisse, the Indian startup ecosystem has witnessed the birth of almost 70 new unicorns in the past two years. However, there has been a noticeable pause in new unicorn creation, which was anticipated. Currently, in 2023, there hasn’t been any new privately-held startup valued at $1 billion or above, also known as a unicorn.
The pause in new unicorn creation is attributed to the global rise in interest rates and a slowdown in unicorn formation worldwide, as per a report by Credit Suisse. Additionally, the report noted that the increasing valuations of the existing unicorns could be “misleading” and that the rise in valuation for 91 unicorns from the previous year’s list was biased due to successful fundraising in a tighter funding environment. Furthermore, the report highlighted that the growing layoffs in the ecosystem indicate a drop in value for several firms, even if only some down rounds occurred during the year.
The report by Credit Suisse emphasizes that the Indian unicorn ecosystem is significantly larger in comparison to the country’s listed space, as compared to other jurisdictions. With unicorn valuations amounting to $357 billion, which is 11% of the listed market capitalization, India leads the pack among jurisdictions such as China (7%), the US (5%), the European Union (3%), and ASEAN (3%).
According to the Credit Suisse report, private funding for Indian startups has declined from $65 billion in 2021 to $42 billion in 2022, with a slower current run rate, though still stronger than equity-raising in public markets, which stood at $10 billion, the lowest in five years. The report also notes that the necessary connection between private and public equity markets has resulted in a slowdown in late-stage funding, postponed IPOs, and a revamp of business models, including downsizing. This slowdown in expected growth has also led to reduced valuations. Some companies on the list may currently have a value below $1 billion, but the report retains them as there has been no valuation event.
The Credit Suisse report observed that although the number of private deals did not decline significantly, the late-stage funding rounds, which are generally larger in size, decreased by half. The report attributed this decline to the exit of non-traditional VC/PE firms that had entered the private market and the underperformance of the first tech listings. On the public market listings of new-economy companies, the report noted that the surge in private market valuations in 2021 generated significant interest in these firms among public market investors. The report also highlighted that the spate of large tech IPOs in 2021 established a vital link between private and public equity markets, resulting in strong public market interest and high valuations for new listings.
After the initial surge of interest in new-economy companies’ public market listings, valuations declined steeply due to global market pressure, resulting in stock price declines. All eight unicorn IPOs considered in the Credit Suisse report are trading below their listing prices, with only four of them trading above the valuation in their last funding round. Public market investors have borne the brunt of this weak performance, with VC/PE firms experiencing minimal losses. The report notes that this is crucial for the sustained flow of funds into the private market in the coming years.
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