50% of Indian Unicorns Set to be Profitable by FY27, 20% to Shut Shop or Pivot: Redseer According to a report by strategy consulting firm RedSeer, 20% of unicorns are projected to struggle because of regulatory issues, plummeting demand, and unclear business models, while 50% of unicorns are anticipated to become profitable by FY27.

Redseer's analysis of 100 unicorns predicted that there will be ~55 profitable unicorns in India by FY27, up from ~30 in FY22.

According to the strategy consultants' estimate, 50% of unicorns are anticipated to turn a profit by FY27, while 20% are predicted to struggle because of regulatory obstacles, declining demand, and ambiguous business models. Some of the struggling unicorn businesses might switch to new models, be bought out, or shut down completely.

Due to large-scale disruptions, the Indian startup world has been on a roller coaster ride for the past few years. As per the analysis, the startup ecosystem in the nation saw a sharp funding peak in FY22, totaling almost $50 billion, but a slow advent of funding winter over the following quarters resulted in a 70% reduction in FY23 to $15 billion.

Drawing a comparison between private unicorns and publicly listed companies, the Redseer analysis stated that there are about 100 unicorns and less than 400 public companies with a market cap of over $1 billion.

According to Redseer, the tech industry has an outsized impact on the economy and there is a propensity for overvaluation among startups.

Mohit Rana, Partner at Redseer, spoke at the 8th edition of the Ground Zero conference, which was organised by Redseer Strategy Consultants, and discussed what the future holds for Indian startup funding as well as how it managed to turn towards profitable growth.

The obstacles to sustained funding have included rising capital costs and interest rates, the global economic downturn, a drop in the value of tech companies, and a slowdown in the expansion of the consumer internet. As a result, Rana added, startups are concentrating on hastening their route to profitability and lowering burn rates.

As startups navigate rough waters, Rana said boards must ensure future alignment and assume greater responsibility for assisting and supporting founders.

Over the past five quarters, listed tech companies have significantly improved, said Rana.

He continued, drawing comparisons between listed tech companies in India and their international counterparts: "Zomato increased take rates from restaurant partners and delivery costs from customers. Paytm launched new products, expanded into new business segments, and upsold/cross-sold to existing customers to increase revenue per customer and reduce CAC."

Additionally, he added, "Global peers have also been shown to follow a similar route to profitability. Uber extended its revenue streams, decreased driver incentives, and raised take rates to 28% in 2022 from 15% in 2021. Airbnb boosted fees from both guests and hosts while optimising and maintaining cost discipline in its personnel and marketing."

According to the report, profitable unicorns in India might make five times as much money in FY27 as they did in FY22. Fintech and financial services, B2B, SaaS, and ecommerce are the top four sectors predicted to generate the largest pool of profits in the upcoming years.

Redseer expected a decrease in business losses over the same time frame. However, it's anticipated that many of the negative margin businesses would experience changes in funding, a decline in valuation, and a shift to a significantly slower growth trajectory.

As per Rana, "many players are concentrating on growing their share of the market for digital ads, which has a significant opportunity to drive revenues."

In reference to cost-cutting, he stated that "Players can further reduce customer service cost while maintaining a high CSAT (customer satisfaction) score, as only 10% of companies have optimised their spend while maintaining a good CSAT."