Valuation reset: Startups begin losing unicorn tag

MUMBAI: The unicorn tag is no longer easy to come by for India’s startups. Blame it on the AI boom triggering the flight of substantial foreign capital to the US or investors rejigging their approach in line with the current business landscape: the startup space is undergoing a valuation reset.Data sourced from Tracxn showed that at least 10 startups have been devalued since 2024, losing out on the unicorn status. A unicorn is a company valued at $1 billion and beyond.“Much of the world has changed since the Covid-era funding boom. The zero interest regime is gone and most of the foreign money is now parked in US treasuries for the high yield. Worldwide risk capital has been chasing AI and allied industries. Companies that are not AI native have fallen out of favour. Investors have been marking down valuations of companies to the new business reality,” said Siddarth Pai, founding partner at 3one4 Capital.India has a lot of capital to deploy in the early stage but in the growth to late stage, significant allocation comes from foreign funds which are flocking to the US where all the AI activity is happening, Pai said.

Last week, Slice, which is now a small finance bank, raised $100 million in a down round with its valuation more than halved to around $450-$470 million. That’s a near 70% correction from its peak valuation of about $1.4 billion around 2022. Many of the valuations are being readjusted in terms of the current business metrics.In the case of Slice, investors are now assessing it as a banking firm rather than a fintech. In the edtech sector which is past its high growth phase, Unacademy got acquired by rival upGrad in an all-stock deal valued at just over $200 million, about 94% lower than its peak valuation of $3.4 billion in 2021. “We raised at a peak but sold at a fraction of that. I’m not going to dress these facts up,” Unacademy’s co-founder Gaurav Munjal said in a post on X.Private market valuations are normalising after the excesses of the last funding cycle of 2021, with investors now placing greater weight on fundamentals, growth efficiency and profitability after seeing the pushback from public markets. The recent withdrawal of some mega IPOs is a clear indicator (PhonePe, Zepto delayed IPOs over valuation mismatch), said Anup Jain, founding partner at BlueGreen Ventures. Besides, a large chunk of capital being raised by investors is being earmarked for AI funding. Accel’s new India $550 million fund which will start deploying capital from next year has a big AI focus.“What we are living through now is the hangover. Companies raised on vanity metrics; the real numbers never caught up, and today many cannot justify the round they already raised, let alone a markup on it. That is how the (unicorn) tag slips away. Before pricing a new round, investors are testing whether the last round was ever justified, and they are underwriting the real numbers rather than the story around them,” said Jashank Pohani, head, family office relationships at Artha Group.