In the budget session 2022, our FM Nirmala Sitharaman said that India added 44 unicorns (startups with valuation > 1 billion USD) between 2020 and 2021. To top this Golden Feather in “India’s Growth Story”, the number of recognised startups have increased to about 14000 in 2021–22 from about 700 in 2015–16.
India also overtook UK, in terms of country with most unicorns, falling behind only USA and China.
Although this looks like a rosy picture, we miss an important point.
Indian Economy while witnessing a rapid growth has also witnessed a high inflation rate.
Based on the inflation data here[1] , $1 of 2014 , is equivalent to $ 1.49 in 2022 based on World Bank Consumer Price Index for India. This essentially means if a basket of goods cost $100 in India in 2014 would be worth $149 in 2022, which means $100 worth of goods today (2022) is equal to $67 of 2014.
This implies that a unicorn today is a startup which would have had $670 million valuation in 2014 !
Thus there is a need to re-evaluate a milestone of Unicorn Status for startups and readjust it as per a well defined criteria, this should make it easy to compare the temporal valuations of startups.
As per the analysis that is verifiable here [check sheet Unicorn Table India], between Jan 2021 and Feb 2022, “Inflation Adjusted Unicorns” are only 24, compared to 52 ( without adjusting inflation in valuations)
Inflation Adjusted Valuation
= Valuation_Today * (value of $1 today vs base period)
Here we took the based period to be 2014
This in no way implies that India hasn't performed well in startups and ventures, 24 Inflation Adjusted Unicorns, is commendable compared to only 4 unicorns between 2011 and 2014.
Valuation alone should not be the only criteria for measuring the success of startup ecosystem. Metrics around burn rates, profitability, attrition, ‘hire and fire culture’ and poor ethics in running business aren't able to get enough position in discourse of startups.
Skill Development, Inclusive Growth
Startups have created jobs and has led to the development of technical workforce with 70% of jobs in e-commerce, mobility, and food delivery platforms[5][6], signifying a concentration of job-force. However most of these jobs are under low skill segment which are less rewarding. Jobs of delivery personnel and drivers working in e-commerce, food delivery, logistics etc falls under this category
Up-skilling the workforce has not received attention it deserves. As a result of this, any technological change ( drone delivery ) or automation ( AI race) may render this workforce unemployed and increase the dent of poverty. Consequently when the landscape changes and incomes fall, there would be a loss of aggregate demand in the economy which in turn circles back to startups and businesses in the form of reduced incomes ( due to reduced sale).
It is essential to understand that it’s not just in Govt’s interest to upskill the population but also in the interest of the businesses.
With a realigned focus as highlighted in Cornwall Consensus[G7], there is a need for inclusive growth having “pre-distribution”(attributable to all) rather than “redistribution”.
Corporate Governance and Ethics
Its interesting to note that there are 2 crypto-trading startups which attained the unicorn milestone and they are already stuck in serious issues.
They have been pulled by bodies (like Advertising Standards Council of India) on pushing advertisements that have misleading tendency on one hand[2], while Enforcement Directorate summoned another crypto exchange for FEMA violations[3] .
Recently another Fin-tech Giant, which is valued at 2.8 billions USD was in the limelight for the wrong reasons. There is an alleged case of siphoning funds illegally from the company accounts to fictitious entities[4].
The same company also launched its daughter brand, with an aggressive campaign to push “Buy Now Pay Later” [BNPL] with a tagline “dede na aram se”. There is no problem in availing credit for constructive activities (job creating, asset creating ) and basic necessities or some level of comfortable leisure spending — automobile , travel. The problem of debt trap starts when there is excessive loans on depreciating and consumable non essential items, as projected in the advertisement — shopping latest apparels, movies, leisure eating etc.
An edtech unicorn having toxic work culture, pushing education products to poor parents with a false promise of up-skilling their wards and mounting pressures on sales team to move inventory (education packages) received media traction due to heavy efforts of activists.
This establishes a fact, there is an evidence of poor ethics in the management of these companies. On paper most startups would identify themselves as having the best culture possible with best corporate governance practices, in reality most have multitude of problems.
In an endeavour to capture the market or increase the market, the principles of morality washes down the drain. Founders and senior management are more consumed and obsessed with competition and market share, that they lose touch with the morality of their business decisions. Excessive burn had resulted in layoffs over 2015–16 period, low skill jobforce paid the major price.
This in no way undermines the massive growth and wealth generated with a value addition in the Indian Economy. However there is a strong case for revisiting the above mentioned shortfalls in the startups. We all need to take learnings from M.Gandhiji and avoid practicing Commerce Without Morality as one of the Seven Moral Sins.
TLDR [Too Long; Didnt Read]
- Inflation Adjustment in valuation and redefining unicorns based on the proposed formula → Valuation_Today * (value of $1 today vs base period)
- Upskilling the workforce should not be a responsibility of Government Alone
- Its high time to rethink direction of business and align it on principles of ethics and morality
References
- Inflation Calculator
- Advertising Push by celebrities on crypto exchanges
- Wazirx[crypto currency exchange] pulled by ED
- Recruitment Fraud at BharatPe
- ‘NASSCOM Tech Start-up Report 2021 — Year of the Titans’, Indian startups created 6.6 lakh jobs directly and enabled 34 lac indirect jobs in 2021, 70% them enabled by e-commerce — food delivery platforms.
PS
I sat on this article for sometime, contemplating if it would hurt anyone’s sentiments or project a negative discourse. There are two angles that I could think of — emotional and logical.
Logically, this article is confined to my views on current functioning of the spaces and why there is a need for rethinking.
Emotionally thinking, the companies mentioned in references may not find it captivating for their branding. Though whatever mentioned isnt cooked up in the air, it has happened and there is no denial, irrespective of the successes, there are shortcomings that needs serious improvements.
