The Indian tech start-up ecosystem is feeling the effects of a global slowdown. The downturn in valuation multiples of listed technology companies is a clear indication of the same. The potential unicorn club, which is more diversified in terms of industries, business strategies, clients, and regions served, expanded at a similar pace in 2022 as it did in 2021. The pool is a sign of the ecosystem’s depth and sustained investor interest in technology start-ups. The potential unicorn club now has 170+ members, with 60 added this year, showcasing the scaling potential of Indian start-ups even in dynamic market sentiments.
Tech Start-Ups in 2022: A Global Slowdown
The Indian tech start-up ecosystem is feeling the effects of a global slowdown. Despite being innovative and resilient, the meltdown last year had a severe impact on the Indian tech start-up ecosystem. This is a worldwide phenomenon, with the downturn in valuation multiples of listed technology companies serving as clear evidence.
The index chart below shows the valuation multiples of NASDAQ-listed technology companies (a set) vs. the number of unicorns in India. The median revenue multiple (the thin blue line) was between 10X to 16X from Q4 2020 to Q2 2022 when most unicorns came to India and globally. However, in Q3 2022, this revenue multiple dropped to 6X, leading to a lower number of unicorns in India and globally.
Globally, new unicorn additions were anomalous in 2021. The value multiples changed due to market changes, necessitating significantly improved business indicators for start-ups. After rectification, the rate of unicorn formation is consistent with the basic principles of the ecosystem.
Interestingly, the potential unicorn club expanded at a similar pace in 2022 as it did in 2021. Potential unicorns are start-ups that have raised over $50 billion in total funding to date. Through 2021-2022, valuations for seed and early stages remained stable. An increase in the potential unicorn pool is a sign of the ecosystem’s depth and sustained investor interest in technology start-ups. The pool is more diversified in terms of industries, business strategies, clients, and regions served.
The potential unicorn club now has 170+ members, with 60 added this year. When start-up valuations are questioned, this pool showcases the scaling potential of Indian start-ups even in dynamic market sentiments. Therefore, the booming potential unicorn club highlights that the new unicorn era is not far away; it’s just a matter of time.
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