Why Everyone is Obsessed With Fragile Business Models and Overhyped Valuations?

Banglore (Karnataka) [India], January 12: Imagine you see a rainbow every day. Would it be special and exciting or like any other routine sight of the day? There is beauty in the rainbow, and it is appreciated more because it is also rare. Anything rare should be spared. But mankind differs here. Anything rare or unique is seen as an opportunity, and we overcrowded that place. Like a unicorn is a rare species and stands out among a herd of horses.

But now, our obsession with UNICORN makes the scenario reversed. There is a zoo of unicorns in the country and a few horses here and there. Yes! You caught the rope (the overcrowded Indian unicorns) which I was throwing. A start-up wins the unicorn title because the start-up is small yet ferocious and magical, just like the unicorn. In 2013 venture capitalist Aileen Lee came up with this term, keeping in mind all these qualities – rare, fierce, and highly valued. But not even a decade, and it is no longer rare and disrupted the ecosystem completely.

Start-ups are taking off and becoming unicorns but cannot sustain the game. Higher valuations play havoc with a forecast of soaring profits to get more funds. According to a study, only 30 percent of unicorns are EBITDA-positive.

The difference between the founders’ valuation numbers and actual results is like the difference between the earth and the sky. Bengaluru-based well-known mobility start-up last year’s valuation was $ 7.3 billion, and this year is  $ 7.15 billion. Some numbers are astonishing and depict the crazy overvaluation by start-ups. In 2021 the total valuation was $ 93 billion; as of September 2022, the total valuation is $ 340.7 billion.

The popular ed-tech, food delivery, beauty product, and insurance companies’ path to IPO also raised stark debate about the true worth of the company v/s valuation being quoted.

Firms should work towards building profit-making business models and stability rather than estimating fancy valuations. Acclaimed luxury car rental business Hype functions with the same ethos.

Like the big giants Tatas and Reliance, Hype also believes in profit making, creating a strong product or service which can be adapted with technology advancements, and avoiding debt that can make the entity fragile.

The Indian Unicorns to stay unicorns at the cliff should follow what companies like Hype do. It is a choice between a test match over T20!