Failed Unicorns in India: The Indian startup ecosystem that is characterized as a potential global force of innovation and growth witnessed an unparalleled growth in recent times between 2020 and 2022. This is the time that was marked by a spike in venture capital flows and a flood of many so-called unicorn start ups (start ups valued at more than 1 billion). Expressing this high hopes, Union Minister Rajeev Chandrasekhar was so big and bold in his numbers when he forecasted that a 10X increase in the number of unicorns in the country, in the next 2-3 years, is likely to exceed 1,000.
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The Story of One of The Top Unicorns in India
On the same note, the co-founder of Byju, Divya Gokulnath also said,
“You know, today when the first 100 Indian companies have got in it, it is a mark of pride and that we are on a mission to do something useful and something Indian that the world wants”.
This was the time when high rates of valuation increases were celebrated as national success and in many instances critical analysis of the fundamental business strengths and its governance were hidden.
This atmosphere in which there was mass government and media encouragement of high valuations, created a widespread perception that high valuations were good in and of themselves regardless of profits, and went towards creating a culture of growth at all costs.
Fall of an Unicorn Startup
Failed Unicorns in India: But the situation has been drastically changed. A promising story of epicenter unicorns no longer exists as there is now a gloomy environment of layoffs, accounting/financial results, and complete closures and now referred to as a funding winter.
- An analysis of the systemic problems that translated into this “disappearing act” have been investigated in this report including faulty business models, failures in governance to investor pressures. It studies the far reaching consequences of this on the business future of India and urges a paradigm shift to green and profit making development.
The first boom was fueled with huge optimism and expectations and greatly enhanced by increased global capital liquidity and inflationary growth of its investment assets. This outward macro technical caused a problem in driving valuations up (on non-organic growth) and that is why the subsequent contraction of world capital became a funding winter and what we are facing today.
Unicorn Wave In India (2020-2022) |
Even the least-fortunate startups experienced the capital influx that has accompanied the Indian ecosystem since 2020 and has helped many companies become valued unicorns. Personally, Indian tech startups Singapore have enjoyed an all-time high of funding in 2021 at $42 billion through 1,583 deals a huge improvement over the $11.5 billion raised in 2020 and the $10.9 billion in 2020. This outpouring in funding saw 42 more unicorns emerge in the year 2021, basically doubling the total number of unicorns in India to 90.
India Became One of Largest Startup Ecosystem
As of June 2022, India became the third-largest startup ecosystem in the world with 103 unicorns and one-tenth of the world unicorns being formed in India. This speed at which businesses rose to this status was also increasing with an average rate of 7.8 years to become a unicorn in 2021 as compared to 9.9 in 2020. The most active sectors to fuel this increase in the number of unicorns were fintech, e-commerce, Software-as-a-Service (SaaS), and health-tech.
The government played its part in this story, and in fiscal year 2022 alone, the Department for Promotion of Industry and Internal Trade (DPIIT) had identified over 61,400 startups, or more than 14,000 in FY22 alone. Measures such as Start up India were heavily encouraged and an unprecedented goal was envisaged in terms of intake of new unicorns. Such interest was reflected in media reporting which remained positive in its assessment of the rise of India as a global power around entrepreneurship.
Growth & Funding of Indian Unicorns From 2019-2022
The excitement was further intensified by the high-profile Initial Public Offerings (IPOs) by the new-age companies like Zomato, Nykaa and Paytm. Such blanket approval by the government and the press generated a fear of missing out (FOMO) between investors and entrepreneur.
| Year | Total Funding Raised by Indian Startups (USD Bn) | Number of New Unicorns | Total Number of Unicorns (End of Year) | Key Unicorns/Decacorns (Examples) |
| 2019 | 13.2 | 7 | 21 | Delhivery, Ola Electric, Lenskart |
| 2020 | 10.9 | 11 | 21 | Cars24, FirstCry, Nykaa, Unacademy |
| 2021 | 42 | 42 | 90 | MamaEarth, Dream11, Byju’s, Swiggy |
| 2022 | 24 | 17 | 103 | Amagi, Games24X7, Zoho |
Note: Data for “Total Number of Unicorns (End of Year)” may vary slightly across sources due to different reporting cut-off dates and methodologies.
When Indian Unicorn Startups Crashed | Failed Unicorns in India
Start of Failed Startups: The euphoria of the unicorn crash was starting to subside, and to be replaced by a time of acute pain including corporate collapses, mass layoffs, and an apparent change of mood by investors. This shift demonstrates the structural weakness of the oversight system in the Indian startup ecosystem, experiencing a boom, whereby even the term of unicorn, acquired through the quick rounds of funding, could have obscured its core flaw and promoted making compromising decisions. It is not only a market correction but a comeuppance of a growth model that was concerned more with valuation as opposed to viability.
Story of Byju’s Rise & Fall | Failed Unicorns in India 1
Byju is an Indian ed-tech company that was once the poster child of the Indian tech industry; it was valued at 22 billion as of late-2022, but this dropped to nothing in October 2024. The firm is caught in a very hard financial squeeze, a plethora of legal wrangles and business turmoil. It also substantially worsened its financial performance with the losses increased to Rs 252 crore in FY2020, to Rs 4,564 crore in FY2021, and to Rs 8,245 crore in FY2022.
- It experienced a lot of backlash because it filed its audited financial for FY2021 with a delay of 17 months, which finally prompted the action to go on to resign its auditor, Deloitte, and three board members. In addition, Byju had also violated a $1.2 billion term loan, which has led to constant wrangles with lenders in the US. National Company Law Tribunal (NCLT) has also permitted insolvency proceedings against the parent of Byju, Think and Learn, on unpaid dues of more than 158 crores to Board of Control to cricket in India (BCCI).
The aggressive acquisition policy that Byju engaged in as it bought Aakash Educational Services in a respectively $1 billion transaction and WhiteHat Jr in a respectively 300-million-dollar takeover as well also contributed to its miseries. Although founder Byju Raveendran justified the move by saying, the Aakash acquisition moved was one of our best acquiring offerings, the deal encountered some serious hues.
A Startup Which Almost Became an Unicorn | Failed Unicorns in India 2
An auto-tech startup, GoMechanic, located in Gurugram, turned out to be a striking case of financial fraud in the Indian startup community. It has openly confessed by its co-founder, Amit Bhasin, to make errors in judgment on financial reporting, comprising overstating of its revenues and generation of bogus garages. These malpractices were disclosed through the due diligence that was being undertaken by E&Y which is an audit firm that was hired by SoftBank to raise a proposed series D funding exercise.
The exposure had a devastating effect to key investors such as Sequoia capital and Orios venture partners who later had to write down their investment in the firm. SoftBank and other potential investors rescinded the agreement instantly, effectively closing down GoMechanic and laying off three quarters of the online business. This event was a clean illustration of how investors and founders lost trust with a strong reminder that there was a dire need to set up sound verification systems that would not rely on implicit trust.
Fall of Mobile Premier League (MPL) | Failed Unicorns in India 3
Mobile Premier League (MPL) is a gaming unicorn that experienced a lot of difficulties due to regulatory change and changes in the market landscape. Since the prohibition of one of the popular battle royale games called Battlegrounds Mobile India (BGMI) in India, the company has suffered an immense loss of its user base.
- Even BGMI alone in India was plagued with technical issues, widespread cheating, and constant legal limbo because it is developed by Chinese company Tencent, all at the expense of Indian gaming in general. What only made matters worse in the case of MPL was the Indian government levying a 28% Goods and Services Tax (GST) on online real-money games, but taking this burden to a level of 350-400% heavier on MPL.
This regulation compelled MPL to face large-scale layoffs and have to remove more than half of its employees (about 350 people) in August 2023, its second layoff since 2021.
Failed Unicorns in Indian Startups | Valuation & Financial 2021-2022
| Company Name | Peak Valuation (Year) | Current/Post-Crisis Valuation (Year) | FY21 Revenue (INR Crores) | FY21 Loss (INR Crores) | FY22 Revenue (INR Crores) | FY22 Loss (INR Crores) | Key Issue |
| Byju’s | $22B (2022) | $0 (Oct 2024) | 2,280 | 4,558 | 5,298 | 8,245 | Financial mismanagement, legal disputes, failed acquisitions, liquidity crisis |
| GoMechanic | ~$800M (2023, projected) | Shut down (2023) | N/A | N/A | N/A | N/A | Fudged financials, fraud exposed by due diligence |
| MPL | Unicorn status (2021) | Significant downsizing | N/A | N/A | N/A | N/A | Regulatory impact (BGMI ban, 28% GST), user base decline |
| Zilingo | ~$970M (pre-meltdown) | Defunct/Liquidation (2022) | N/A | N/A | N/A | N/A | Fraud allegations, unsustainable cash burn, operational issues |
| Trell | $120M (July 2021) | Funding stalled | N/A | 78.4 | N/A | N/A | Financial irregularities probe, high cash burn |
| Cuemath | $407M (June 2022) | Valuation correction | N/A | 131 | N/A | 217 | Valuation drop, high losses, ed-tech slump |
| Udaan | Peak GMV $4B (post-pandemic) | GMV $1-1.5B (current) | N/A | N/A | N/A | N/A | Revenue decline, strategic retreat, layoffs |
| Meesho | $4.9B (Sept 2021) | $4.4B (March 2023) | N/A | N/A | N/A | N/A | Valuation markdown, cash burn reduction, layoffs |
Note: N/A indicates data not explicitly available in provided snippets for that specific year/metric for the company.
Why Startups Fail in India?
Reason of Failed Startups: The issues that have become widespread within the Indian startup ecosystem are not some accidental occurrences but a symptom of some underlying problems that became accentuated during the era of the high availability of capital. These are problems that are closely intertwined and like a complex spider web then it was the culture of growth at all cost that ignited financial indiscipline and in some instances out right deception.
Soft funding was easy to acquire and startups could continue having unsustainable practices, which created a feedback loop since higher valuation meant more funding was resulted in more aggressive growth strategies which in turn would allow and even encourage deceptive practices.
Valuation Fraud of Failed Startups
Founders have been alleged to misstate product features, inflate revenues or open bogus accounts of customers. As an example, one of the co-founders of GoMechanic was caught with fudged financials i.e. inflated revenue committed fraud and non-existent garages. Zilingo was accused of revenue increases and Builder.ai was found to have low level workers using round-tripping transactions with an Indian company to artificially increase revenue by up to 300%.
Although there are valid techniques to value revenue-less startups at the formative stage, i.e. the Berkus Method, Scorecard Method, Venture Capital Method, Risk Factor Summation Method, and Market Multiple Approach, frequently the expectations to attain unicorn status resulted in inflated valuation of intellectual property and representing unrealistic projections to investors.
Rise of Venture Capital Investors in Unicorn Startups
Venture capital investors, especially those in boom years, had become focused instead on fast user growth and market share, rather than profitability and good unit economics. The next market shift of requiring to be more sustainable, and to demand unit economics revealed the weaknesses of such a growth model
Reason of Failed Startups in India
In addition to the numbers and corporate interests, there has been an invariable human toll to the Indian startup phenomenon of the so-called disappearances of startups whose effects have been felt by thousands of people in the startup ecosystem. The stories behind these people show a clear picture which can be mostly concealed with the glamor of startup culture.
Sudden Layoffs of Employees
Numerous workers have given gripping stories of how they lost their jobs without providing any warnings. This is because startups tend to close down without warning in what can be called overnight, laying off their workers and in some instances, leaving them without pay. These sudden shut downs have brought in immense shock and distress.
To give you one example, two weeks ago one of the techies received a very urgent email asking to attend an all-hands meeting, and was informed that the company had literally run out of money, investors had abandoned them, and the operations were shutting down and with that 19 people lost their jobs without even seeing their monthly salary.
Why Failed Startups CEOs Do Sudden Layoffs?
One of the patterns here is the fact that the management and the CEOs were really secretive when it came to the fact that their company was gradually falling apart financially. The employees are usually kept in the dark to the end of it all causing a sense of betrayal and doubting. The problems do not stop at the layoff, having to find new job positions is the key problem that many of the persons experience after the layoff.
The process of job hunting can be referred to as exhausting as it is mentally demanding and involves applying to many companies and experiencing feelings of failure when companies disappear during interviews and take-home tests. The so-called phenomenon of the overnight shutdown refers not only to a loss of employment but a serious betrayal of trust and mental trauma of the workers.
This develops a negative impression concerning employment in startups and this may affect future hiring of talents into the ecosystem more so because, job security is one aspect that helps in influencing employee engagement and productivity.
The Silence of Investors in Failed Startups
Venture capital (VC) community is an inseparable part of the startup ecosystem, and their reaction to large-scale downturns has been, in many cases, marked by strange non-reactions when it comes to their failed investments. This trend has its basis anchored on a number of strategic and operational considerations.
Why Most Investors Do Not Reveal Busted Bets?
The VC firms invest so much in their reputation to be able to entice the Limited Partners (LPs), whose money they use to fund them, as well as to entice the prospective portfolio companies. Having failed investments be publicly known by others would worsen their image considerably, thus being more difficult to gather funding in the future or to recruit high-potential founders.
Moreover, owing to a guaranteed high level of failure of the portfolio companies at an early stage, VCs might also face the risk of becoming victims of frivolous lawsuits due to a perceived violation of confidentiality or inaccurate disclosures, particularly when a legal action resembles the only large remaining asset of a defunct company.
Reason why Startups Fall in India Due to Venture Capitalists?
The dilemma that VCs have is between the positive perception that they need to project to raise more capital and transactions in future and the high failure rate of venture investment. Their failure to report personal failures is a calculated business decision and risk avoidance to save any damage to their reputation and any possible litigation, but it indirectly adds to a lack of transparency which may build a dented market confidence.
- It results in the information disparity among VCs and the general population and possibly certain LPs, and this may result in a so-called loss of trust, when exposures are finally outed, as was the case with Byju, GoMechanic, and Zilingo. The implication of this to the dream of Startups in India: on path to resilience and sustainability
The recent drop in the Indian startup ecosystem is not just a short- term “funding winter”; but a much needed reset or a clean-up that is causing a rethink in the existing models of growth. This transition is an enforced transformation of a quantity more than quality paradigm of having unicorn status at all costs to one of quality-based, where it has been on environmentally friendly, profitable projects.
Boom-and-Bust Cycles Reviewed
Indian startup ecosystem has had tangible boom and bust cycle. This followed the sudden high point in 2021 with unprecedented influx in funding followed by a major decline in 2022 and 2023 and a tentative progress continues in 2024.
These phases are intimately connected with worldwide liquidity of capital and shifting interest rates , and with investor psychology, which is a pendulum that swishes between growth at all costs and having come back to the interest in unit economics and profitability. The market is currently self correcting, by requiring a better foundation to be in demand and this means there is a paradigm shift in that the rules to success are being redefined.
The Need of Sustainable, Audited and Profitable Development
The prevailing situation requires Indian startups to shift the focus radically. Instead of the focus on attaining the so-called vanity metrics and massive funding rounds, it is crucial to focus on the actual product-market fit, operating margin, and customer retention. These days startups had to become capital efficient, construct their buildings wisely with less supply and consider options such as venture debt to avoid equity syndication. The two scandals of GoMechanic and Byju’s have highlighted the significant role of strict, independent audits and the strong financial controls applied as early as possible in the development of a company.
Conclusion: Unicorns to Warning Tales- Closure on the Camel Model
The experience of India startup ecosystem in transitioning through the joyous highs of the unicorn wave of 2020-2022 to the necessary correction and simplification that we are seeing currently, can be valuable in terms of a powerful cautionary tale.
The result was a frenzied rise as a result of ample world capital and media hype, which created artificially high valuations and a system of culture that frequently emphasized growth at any cost rather than the overall soundness of an organization. The next wave of such “disappearing act” by major firms such as Byju s, GoMechanic, MPL, and Zilingo, as well as the numerous correction in valuations and subsequent mass layoffs throughout the ecosystem, is a clear demonstration of the unsustainability of such a model.
The Rise of Failed Startups in India
The causes that lie behind this decline are more deep seated: the pressures of growth usually resulted in creation of fake metrics and valuation modifications with venture capitalists insisting on investing in untenable growth.
Constant availability of the available capital easily stimulated an absence of financial control and blistering attrition of cash. More importantly, serious flaws in corporate governance and openness provided an environment in which such problems could simmer, a fact that resulted in a serious loss of investor confidence and a severe human toll on thousands of workers.
Concept of Success for Startups
This time of accountability will require us to rethink the concept of success in the Indian startup story. The ecosystem needs to change the focus not only on going after the goal of billion-dollar valuations but a more resilient, sustainable model: the camel startup. Contrary to unicorn-focused on speed of valuation-based growth at all costs, a “camel startup” minds its sustainability, profitability, and flexibility.
Camels do not need such constant outside injections of venture capital and are genetically engineered to live and thrive in the long run, even during difficult economic times by conserving their goods and making the most of the environment that surrounds them.
At a macro level, this transition is an indication of a change in the consciousness and priorities of the Indian startup community, as they get to realize that the only way to grow fast is to have a base of profits behind that.
How to Amplify Failed Startups?
To amplify on this, it is possible to compare this to CAMELS rating system employed in the evaluation of the soundness of financial institutions: Capital adequacy, Assets, Management capability, Earnings, Liquidity, and Sensitivity to market risk. Such application to the startups would reverse the priority on speculation-driven growth toward the accountable financial and business viability.
The present crash, however, as unpleasant as it is, is a sorely needed clean- up which will be crucial to the long term health and maturity of the Indian startup ecosystem. These greater levels of scrutiny, greater diligence and renewed interest in governance will inevitably create a situation where more plucky, stronger and truly innovative companies will start appearing.
Success of Startups in India
The startup dream in India must transition to accepting a healthy environment full of endurable business ventures that bring substantial value, create sustainable services, and add constructively to the economy regardless of whether they are called unicorns. Such a redefinition of success which focuses on the capability of a firm to make profits, utilise its resources in a suitable manner and show the capability of absorbing economic cycles is essential in attracting long term patient capital and instilling an entrepreneurial culture of sustainable business.
References
https://kr-asia.com/india-doubled-number-of-unicorns-to-90-in-2021-report
https://www.pib.gov.in/Pressreleaseshare.aspx?PRID=1895966
Kalyanasundaram, Ganesaraman & Ramachandrula, Sitaram & Mungila Hillemane, Bala Subrahmanya. (2021). The life expectancy of tech start-ups in India: what attributes impact tech start-ups’ failures?. International Journal of Entrepreneurial Behavior & Research. ahead-of-print. 10.1108/IJEBR-01-2021-0025.
