The prolonged funding winter of Indian startups — How much longer will it last?

India may not have had a prolonged winter season, but startups in the country are certainly going through a prolonged funding winter. Here's a fact to prove this — India has not had a single unicorn over the last two quarters.

Investment into Indian start-ups is down 75 percent in the first quarter of 2023. Number of funding rounds, late-stage funding, early-stage funding, everything is down anywhere between 60-80 percent year-on-year.

The freeze is visible across the board — from early-stage funding to late-stage funding. Even funding rounds have shrunk in number.

This has meant that India, which saw over 20 unicorns being created in the first nine months of 2022, has not had a single unicorn joining the ranks in the last six months.

Now compare that to the days of easy money, where companies, that raised funds at eye-watering valuations, tried taking advantage of easy market conditions to go public as well.

But before we come back to India, let us take you through a similar example in the US. A company called Rivian Automotive went public in November 2021 via the biggest IPO of the year. The $100 billion valuation made it more valuable than General Motors and Ford. Very well. But the only problem was that the company had zero revenue!

From its IPO price of $78, shares went up to as high as $178 within a fortnight of listing and then they fell off a cliff. Today, they are languishing around $12.

Back in India, startups have had to go in for large-scale lay-offs to keep their lights burning. Access to easy money has dried up, and investors are pushing companies to put profitability over growth. A few companies have even had to shut down non-core verticals to cut costs — like Swiggy shutting down Supr Daily in 5 cities or Ola shutting down Ola Play, Ola Dash and Ola Foods.

The turmoil in the startup ecosystem has also meant that many have had to put their grand plans for an IPO in cold storage. This list includes some marquee names like Boat, Go First, MobiKwik, VLCC, Oyo, Mamaearth, Byju's and Swiggy.

Some have also had to resort to accepting lower, or stagnant valuations in subsequent fundraising rounds. Even the startups that did manage a listing — often at eye-watering valuations, have been struggling — as are many of their shareholders.

Zomato, for instance, which kicked off the trend of new-age IPOs in July 2021, has lost Rs 50,000 crore in market cap from the high hit on listing day. Shares of other new-age listings like PayTM, PB FinTech, Nykaa and Delhivery have also taken a beating on the bourses — a few correcting up to 60 percent from their IPO price. While some counters have recovered substantially from their all-time lows, they're still a long way from their IPO price.

But experts say this kind of pain will not last forever.

"I think we will see some turnaround and it is perfectly fine for companies to take the medicine and keep moving forward. So, maybe another 9-12 months is my personal guess," Hemant Taneja of General Catalyst told CNBC-TV18, adding that valuations have now become more normalised and that the IPO market will open once interest rates stabilise.

"While rates may not go up much more, they are likely to remain at this level or around this level for at least a year-year-and-a-half more, at least in the US. So, a company that is going to be bleeding a lot for a lot longer — they must move and evaluate the chances of survival. this may affect more the private sector than the publicly listed companies, but that is how the landscape is right now," according to Deepak Shenoy of Capital Mind.

Sanjeev Bikhchandani of Info Edge also told CNBC-TV18 earlier this month that there are more concerns over profitability and customer loyalty and that his advice to the private portfolio would be to turn profitable before listing.

Although there's doubt whether that earlier exuberance — and the propensity to put profitability second to growth — will return to what it used to be.

So investors may have to wait a while for the next new-age IPO that commands a staggering valuation.