Exclusive: These 5 Indian Unicorn Companies are "Least Likely to Survive"

If you're a regular reader of Fortune, you will have caught the latest predictions from Bill Gurley, one of the early Snapchat and Uber backers, predicting ‘dead unicorns’ in startup-land. Since that 2015 article, the number of unicorns has gone up by 50% (96 as of March 2015 vs. 147 as of January 2016). Although a little older, the below graphic shows an increasing pace of unicorn creation - and you'll find more and more Unicorn companies from India, China, and around the world on the list. So was Bill wrong?

All Not Well in Unicorn Land

While many of the best investors brush off murmurs of a bubble and analysts shout warnings from the rooftops, there's a general agreement that things aren't as sound as they once were in Unicorn land. 

One of the first tangible signs lie in the lower valuations being offered to startups currently raising money compared to past rounds - called down rounds in Silicon Valley parlance - by marquee startups like Foursquare, Jawbone, and DoorDash.

The whispers that Silicon Valley investors are now starting to maintain a list of dying unicorns isn't raising helping waning investor confidence, either. In fact, even CB Insights has created a list of early-stage companies it believes are likely running out of cash. All of this chatter is flared by a backdrop of increasing interest rate environment in USA, slowing down of Chinese economy, failing startup IPOs, and falling oil prices, forcing Arab investors and SWFs chase liquidity.

Closer to home in Asia, there are already noises about Unicorn deaths in China. Already in 2015, there has been news of many smaller Indian startups either shutting shop or getting acqui-hired - which is really  another name for "could not raise enough cash to run operations." 

In the Data: Chance of Success of 31 Indian Unicorns

With all of this as background, we set out to understand the state of India’s current and potential unicorns and their chances of survival. We analysed 31 companies with total funding above US $50 million based out of India (no Saavn or Freshdesk) which have at least raised one funding round in 2015. In total, these companies have raised US$ 9.3 bn (~INR 62,000 crore) of which 40% came in the latest round. 

In order to calculate the survival chances, we rated the companies across 8 factors from independent sources:

  1. Fire employees
  2. Scale down operations
  3. Exit of top management
  4. Presence of well funded competitors
  5. Troubled international player
  6. Employee rating (Source: Glassdoor)
  7. Customer rating (Source: Google Play Store)
  8. Lower money compared to previous round in last 3 funding rounds (Source: Crunchbase)

Our analysis brought back three key insights, shared below:

The most stressed sectors in India's startup world

E-commerce, Logistics, and Foodtech are the most stressed sectors, as indicated by multiple well-funded players, employee firings/dissatisfaction, and raising of lower value rounds. These 3 sectors are the most likely place to throw up the next dead Unicorn. The most likely candidate being being Snapdeal, Grofers, and Zomato in each space, respectively. There is eery similarity between the ‘hottest’ sectors of previous boom cycle and the most stressed sectors. Coincidence, not!

Inverse correlation between funding raised & chance of survival

The results challenge the prevailing logic that the more money one raises, the more immune one is to failure. Instead, it would seem that the money comes with increased expectations. In order to justify high valuations, well funded players are trying to find new growth avenues while battling smaller players on their own turf. Whether it be Zomato and Grofers shutting down operations in smaller towns, or Flipkart and Snapdeal battling smaller players like Urban Ladder and Big Basket, examples abound.

Lacking an established leader, any sector is open season for new companies

One of the main reason why well funded players are struggling in spite of large market is the competitors sharing the market with them. According to Vani Kola, Managing Director of Kalaari Capital, more than 4,000 startups were launched in 2015, and most in spaces don’t have clearly established leaders.

Even Flipkart which consumed 30% of all funding raised by the 31 analyzed startups, is not a clear winner. Flipkart tripled it revenues (US $1.5 billion) and losses (US $300 mn) in FY 2014, but at the same time fought back Amazon, Snapdeal, and Shopclues across multiple product categories, while new players like Urban Ladder began taking over the most profitable areas.

Relative to other sectors, Practo, Oyo, and NetMeds have been able to carve a clear leadership position in online healthcare, branded hospitality, and medicine delivery respectively. Hopefully, things will slow down once clear category leaders emerge.

Indian Unicorns Least Likely to Survive

And now, unveiling the names, below are the 5 startups that earned the lowest survival score, in order, based on the metrics stated above:

  1. Zomato
  2. Housing
  3. Grofers
  4. Snapdeal
  5. Flipkart

Bottom-line: Are we likely to see a sea of dead unicorns? Unlikely. Will there be casualties? Of course. But startups stuttering is part of the cost of innovation, often reaching 90% in terms of failures or consolidations, should be seen as a macro sign of the Indian ecosystem maturing, rather than imploding. 

These startups will have to quickly align with the changing global and local landscape or be pushed into oblivion. India will continue to be a bright spot amongst global turmoil, but the language and construct will change. The coming startup cycle will be about the path to profitability, international expansion, and public markets. This study aims to only highlight that in today’s environment, in which no one is safe and in which raising money is no guarantee of success.

It's not all doom and gloom - read our 3 Reasons to be Excited for Indian Entrepreneurs in 2016 next.