After the Indian startup ecosystem birthed almost 70 new unicorns in the last two years, the much-needed pause in new unicorn creation was expected, said a Credit Suisse report. The commentary comes at a time when there hasn’t been any new unicorn in 2023. A unicorn is a privately- held startup valued at $1 billion or above.

The pause is owing to rising interest rates globally coupled with “new valuation anchors provided by the first large listings, and a slowdown in unicorn formation globally”, the report said.

Credit Suisse also pointed out that the increasing valuations of the existing unicorns was “misleading”. “The 91 unicorns repeated from last year’s list saw their valuation rise by $11bn (3.5%), though this may be biased by successful firms completing fund-raising in a tighter funding environment. Growing layoffs in the ecosystem point to a drop in value for several of these firms, even if only some down rounds occurred during the year,” the report noted.

It also underscores the Indian unicorn ecosystem is much larger relative to the size of the country’s listed space, when compared to other jurisdictions. At 11%, the unicorn valuations, of $357 billion, as a percentage of listed market capitalisation was highest in India, among jurisdictions such as China (7%), the US (5%), the European Union (3%), and ASEAN (3%).

“Private funding slowed from $65 billion in 2021 to $42 billion in 2022, with a much slower current run rate, though they continue to be stronger than equity-raising in the public markets ($10 billion in 2022: the lowest in the five years),” it pointed out.

“The much-needed link between private and public equity markets has thus tempered late-stage funding, pushed out IPOs, and forced a rejig of business models, including downsizing. The resultant slowdown in expected growth also hurts valuations. Some firms in our list this year may have current value below $1 billion, but we retain them as there has been no valuation event,” it added.

Credit Suisse also noted that while the number of private deals did not fall as much, the late-stage funding rounds, which tend to be larger in size, halved. “This can be attributed to the exit of non-traditional VC/PE firms that had entered the private market, and the weak performance of the first tech listings,” it said.On the public market listings of new-economy companies, the brokerage firm said that the surge in private market valuations in 2021 “created strong interest in these companies among public market investors”. “Thus, when the spate of large tech IPOs in 2021 created the much-needed link between private and public equity markets, most new listings saw strong interest from the latter, driving a large first-day pop and expensive valuations thereafter”.

However, following the growing pressure on public market valuations globally, initial buying after the initial public offering (IPO) abated, and the “market settled on how to value” these companies – leading to steep declines in stock prices.

Of the eight unicorn IPOs that Credit Suisse considered for this report – Zomato, Paytm, Nykaa, Aptus Finance, Policybazaar, Starhealth, Freshworks, and Delhivery – all are trading below their listing prices, while only four of them are trading above the valuation in their last funding round.

“During their respective last pre-IPO funding rounds, these firms were valued at a combined $32 billion. This increased to $59 billion at the time of their respective listings, but is now $40 billion: $12 billion of that $19 billion fall is Paytm. Thus, public market investors have felt most of the impact of this weak performance, and VC/PE firms have not lost much. This is important from the perspective of continued flow of funds into the private market in the next few years,” the brokerage firm said.

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