Move Over Unicorns, Here Come Proficorns

Even though a temporary phase, the current investment slowdown has pushed companies to focus on building profitable companies, that is, proficorns

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In the last two years, the word 'unicorn' stopped being synonymous with a toy that children play with, a mythological animal resembling a horse or a goat with a single horn on its forehead. It became more popular in the startup context as companies with more than $1 billion valuations. So much so, that when India touched the 100th unicorn mark last year, it became a thing of celebration for one and all.

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However, unicorn momentum and popularity fell sharply as we encountered a global slowdown. Funding for Indian startups dropped by 33 per cent to $24 billion in 2022 as compared to the previous year though it was nearly double the amount recorded in 2019 or 2020, says a recent PwC India report.

Unicorns seem to be fast becoming a thing of the past. The focus has shifted to 'proficorns', a shift that is being appreciated by all stakeholders.

Proficorns s basically a term used for companies that are profitable. Rajesh Jain, founder and managing director, Netcore Cloud, who apparently coined the word defines proficorn as a company having four characteristics: profitable, private, promoter-funded and having a reasonable valuation (say, $100 million or more).

In a 2020 blogpost, he spoke about how and why he coined this word. "In a recent Netcore Advisory Board meeting, one of the members remarked that Netcore had built a very interesting and different model – of profitable growth, without raising external capital. This needed to be talked about more, as an alternative to the "unicorn" growth model – where lots of capital is raised and burnt through quickly in the quest for rapid growth at all costs. As I was listening, a word came to my mind – "profi-corn". I said it aloud, and everyone loved it. I spoke about this in a US visit earlier this year, and got a positive response – the word has a certain ring to it," he writes.

This word has gained traction today at the back of a slowdown in funding and companies, including many unicorns, resorting to steps like layoffs in order to sustain their businesses. Many stakeholders from the ecosystem are coming out in the open to talk about profitability while quoting examples of successful bootstrapped companies such as Zerodha and Zoho.

"Everybody thinks Unicorns are beautiful horses with a unique horn & a VIBGYOR mane...Nobody knows if unicorn is a horse or a donkey? PROFICONS are the real deal... #Zerodha, #Zoho, #Easemytrip are stories to be celebrated instead of hyped donkeys…" tweeted a business coach recently.

Over time, I have come to realize that chasing valuation only gets you so far – if the focus is on building a profitable business with the right business model, one can survive through all ups and downs, wrote Jain.

Rightly so. Today, everybody seems to agree that a successful startup or business is also the one that can manage any external disruptions. Businesses focused on gross margins, unit economics, and contribution margins are the ones that can build businesses on a strong foundation.

This atypical assumption that valuation overlaps profitability has seeped in as a result of organizations' intense rivalry for investors' recognition. The usual financial performance measures, like cash flow and profitability, have receded into the background as investor money dominates the picture due to private equity's inflated values.

"I believe that as the slowdown situation improves, there will be a distinct change in perception. After years of a "growth at all costs" predisposition from the market, I'm witnessing a reversal towards an outlook that rewards profitability, which is a significant turnaround in goals to accomplish on such a short timescale. In spite of the fact that hyper-growth plans may have lost some traction in this market, leaders should avoid compromising the characteristics of a sound growth strategy, as these characteristics will be advantageous when they continue to maximize profitability," said Nishant Pitti, CEO and co-founder, EaseMyTrip.

The company is bootstrapped and this, the co-founder, feels inculcated an unparalleled sense of financial discipline, as they had no money to burn. The company today has more than 60,000 travel agents and 500+ professionals with offices in India and abroad.

In fact, some years ago, 100 Cr. club was what Indian businesses eyed. Thn it was $100 million and then $1 billion and finally even $10 billion. "Businesses move up this ladder consistently. Apple and Amazon opened doors to trillion-dollar companies also. If a billion-dollar company is turning bankrupt three months later, it reflects the froth and not the real value created by the company, it should be sustainable. If a company with negligible revenues is achieving unicorn status then such is a sham. One can achieve a Unicorn status by raising $1 million for 0.01 per cent dilution but is it really a sign of value creation?," added Brijesh Damodaran, cofounder and chief investment officer, Auxano Capital.