Forbes India – Startups: Want to keep the unicorn boom in India going? Focus On These 3 Things: Ashish Dave


From three unicorns per year before Covid, India added around four unicorns per month in 2021
Image: Shutterstock

India has added 49 unicorns since April 2020, and 41 of them galloped into the stable in 2021 alone. The speed is amazing. Let’s cut out the numbers to get a better perspective. We only had 29 unicorns between September 2011 and March 2020. This means that from three unicorns per year before Covid, we added around four unicorns per month in 2021. The pace is expected to continue. The intensity, however, may not be the same.

Is this a validation of the tenacity, passion and vision of the startup ecosystem in India? Does this indicate that our startups have matured? Or do they highlight concerns about “evaluation”? Are unicorns the real benchmark?

Let me start by breaking a myth. Investors love unicorns. To the right? Now here is the reality. Funders are looking beyond unicorns. They rely on smarter criteria such as the ability of companies to generate and compose Free Cash Flow (FCF) consistently against GMV (Gross Value of Goods). As startups feature on Indian stock exchanges, the progress of real growth metrics would be closely watched. “Assessment” and “value creation” will be looked at from a broader perspective. Companies that create efficient cash engines while providing high quality governance will attract investors and capital in a transparent manner.

Treasury, Communication and Culture

This brings us to the three Cs of business. While 2021 was all about people writing about VCs, let’s talk about 3Cs. Founders should remember that cash flow is always king; valuations seem to take the throne only during a bull market. While many hopes for capital have poured in, investor patience will dwindle if companies fail to demonstrate their ability to generate profits, growth and cash flow. Private equity (PE) players buy companies at unrealistic valuations. A reversal of interest rates will also reverse their interest in these companies.

“Sustainable” growth also concerns the behavior of these companies and their founders. When “startups” transform into state-owned companies, regulators and the public keep a watchful eye. When companies express their vision succinctly, it improves understanding of their ideas and generates interest. Conversely, lack of clarity breeds confusion and can have a significant impact on their stock price.

To worsen cash flow and ensure clear communication, founders need to create a great culture, which is driven by values, ownership, responsibility, and a sense of pride in the organization. With the hybrid work culture no longer an aberration, companies will need to create a culture of cohesion, clarity and inclusion to enable employees to succeed and become its true ambassadors.

Founders should waste little time chasing VC money. Although the company is only one of many in the venture capital portfolio, that’s it for the founder. If she focuses on it and regularly checks the 3Cs, VCs are forced to invest in the business despite a high valuation. VCs will also do their portfolio companies a lot of good if they emphasize the 3Cs in their valuation checklist and monitor them closely.

With power comes responsibility and founders must realize that the magic is in achieving the 3Cs, not in the pursuit of the VCs.

Delineate vision and execution

Founders need to realize the need to leave operations to experienced and skilled hands, and evolve into visionary roles over time. Sustainable organizations are built by generals who have an interest in the game and the authority and autonomy to proactively lead. Founders backed by such generals built institutions run by professionals who survived them.

On the other hand, many companies have failed due to the inability of their founders to solve this problem. Founders should realize that hiring mercenaries is not a good idea because they move on when funds dry up. Mercenaries won’t stay long enough to win wars. “Institutionalization” under the vigilant leadership of the generals is the way forward.

Monitor unwanted spikes

Spikes in funding and valuation also created a surge of “ego”. While a founder, along with his team, can stay grounded in the midst of the valuation hype, he will also be better positioned against setbacks.

When the “average reversion” starts to occur, it will create a visible gap between valuations and income. Startups that won’t increase their revenues and profits will be under constant pressure to justify their valuations.

There is too much hope capital that has poured in, but subsequent execution capital will drain painfully. While I don’t want to, consolidation is inevitable and there will be unicorn blood on the road if caution is not taken into account.

2022 and beyond

New funds and capital will continue to flow into India and it will only increase. Will it be distributed democratically? Unfortunately no. We will see an era of “consolidation” that will follow. Companies that effectively execute their vision will gain market share, revenue, profit, and cash flow. When the “consolidation” takes place, these companies will attract more investment and become more valuable.

Companies that create strategic moats by learning quickly, pivoting when necessary, and creating multiple revenue streams will succeed in the 3C framework with distinctive control over cash flow, communication, and culture. Cautious investors will keep an eye on these companies and invest and prosper with them.

The fear of missing out has prompted VCs to invest in companies with astronomical valuations. Many startups have transcended a potential five-year growth path in two years due to the boost provided by the pandemic. Are the pandemic-induced enabling factors here to stay? It doesn’t seem likely.

The market will soon begin to distinguish between companies that have worked hard and those that have been lucky. They will separate the process-oriented unicorns from the rest. This is the balance you need while walking the “tightrope” of entrepreneurship and this is exactly where investors will distinguish the best tightrope walkers from those who might fall.

While it is great to see such capital pouring into India, founders should remember that fundraising is only a big step, not an accomplishment. It is not a ditch, but a means of purchasing resources such as skilled labor, technology and time. It doesn’t guarantee great execution, which is the secret sauce to startup success.

Founders who focus on creating robust processes and a culture of growth and development will ensure that the learning curve within their organization is better. They will effectively manage cycle ups and downs.

The author is CEO of Mirae Asset Venture Investments India

Click here to see Forbes India’s full coverage of the Covid-19 situation and its impact on life, business and economy

(This story appears in the January 14, 2022 issue of Forbes India. You can purchase our tablet version at To visit our archives, click here.)


Comments are closed.