Open, a new banking platform for small and medium firms, raised $50 million at a $1 billion valuation earlier this week, marking a watershed moment for the world’s third-largest startup ecosystem.
Startup founders, investors, and government officials all lauded the achievement.
As they tried to swiftly expand across sectors, verticals, and continents, these 100 startups were aggressive in raising money at lofty valuations.
However, when it comes to profitability, only a few of them have shown results.
According to statistics supplied with Moneycontrol by data analytics firm Tracxn Technologies, only 23 of the 100 unicorns, or firms valued at $1 billion or more, have achieved profitability in a fiscal year.
According to the data, these firms have raised more than $80 billion from investors to date, resulting in a total market value of more than $300 billion.
The data is crucial since numerous unicorns that went public on stock exchanges last year faced investor backlash for failing to attain company-level profitability.
Since their initial public offerings, shares of Paytm’s parent company, One97 Communications Ltd, Policybazaar’s parent company, PB Fintech Ltd, and Zomato Ltd have gone below their initial public offering pricing.
Many analysts at securities and research organizations have challenged these unicorns’ excessive cash-burning models. For example, in a February note, Macquarie Group stated that Paytm’s profitability remained a “distant reality” due to its costly employee stock option plans (ESOPs) and a “sub-scale” loan distribution operation.
Private market investors, on the other hand, are unconcerned about the profitability of new-age firms and remain positive on them.
Investors and entrepreneurs, according to Siddarth Pai, Founding Partner at 3one4 Capital, which has supported unicorns such as Darwinbox and Open, should focus on companies’ paths to profitability rather than absolute profitability.
According to Ganesh, Serial Entrepreneur and Promoter at BigBasket, Portea Medical, HomeLane, and Bluestone, the fundamentals of new-age technology companies differ than those of established businesses, and thus their valuations may not always correlate with key financial metrics such as profitability.
The term “PE” stands for “price-to-earnings.” EBITDA is an acronym that stands for earnings before interest, taxes, depreciation, and amortization.
The story and graphics reflect the most recent Tracxn Technologies data, which was given with Moneycontrol. However, according to their most recent regulatory filings with the Ministry of Corporate Affairs, Mu Sigma and Razorpay’s Indian firms are profitable.
It should also be noted that Groww’s India entity is profitable, whereas its US parent lost Rs 107 crore in 2020-21, according to news agency Entrackr.
Furthermore, while Freshwork Inc recently reported a quarterly loss, its India-registered entity–Freshworks Technologies Pvt Ltd–is profitable for FY21, according to the company’s most recent regulatory filing.