India’s startup ecosystem has earned global attention, producing 119 unicorns, ranking just behind the US and China. But should raising money itself be a reason to celebrate? Venture funding is not the finish line; it’s merely a means.
Late-stage investors typically eye public markets. Thus, a startup’s valuation must stem from its ability to build assets and generate cash flows. So, are India’s startups truly building sustainable value?
Most aren’t. Data suggests that fewer than one-fifth of Indian startups are profitable. To add to it, profitability often follows Initial Public Offers (IPOs) rather than precedes them.
Sectors such as hyperlocal delivery show decent toplines. However, their expense often outstrips their revenues. This may impact future funding rounds.
The funding slowdown is evident in Q1 2025. Just one new unicorn emerged. Investor caution is visible.
Many high-profile startups, including BigBasket, Country Delight, and Unacademy, have seen steep markdowns. More worrying are the credibility crises engulfing names like Byju’s, BluSmart, and Gensol. Each of them is under fire for allegedly inflating metrics or obfuscating costs.
These issues aren’t just financial. They reflect a deeper distortion of a once-celebrated entrepreneurial value: bricolage, or in Indian parlance, jugaad. In its purest form, bricolage refers to doing more with less.
These are scrappy improvisations in the face of constraints. It’s how many early-stage Indian startups got off the ground. They leveraged repurposed tech, second-hand infrastructure, and informal networks.
India has its share of genuine jugaad stories. Zerodha scaled without external VC backing. They utilized tech-led automation to reduce costs.
Freshworks built its SaaS muscle in Chennai before listing on the NASDAQ. This helped the company optimize engineering costs. Agnikul Cosmos, a private space-tech firm, developed 3D-printed rocket engines with modest capital and turned engineering constraints into a competitive advantage.
These are not just anecdotes. They are proof that true innovation often emerges not from excess funding, but from disciplined ingenuity. However, this principle is now being misused.
Two distorted forms of bricolage have emerged – speculative bricolage and puffery bricolage. Speculative bricolage refers to startups stretching their limited resources based on optimistic projections and unproven models. Both create a facade of value, propped up by narratives rather than numbers.
This often leads to inflated valuations, as seen in the case of Byju’s, eventual down rounds, as witnessed by Meesho and Cred, and sometimes, regulatory scrutiny, as in Paytm’s case. Why do company founders behave the way they do? This requires an interdisciplinary perspective.
India’s profitable startup ecosystem
Behavioural economics appears to offer logical answers and insights. According to Prospect Theory by Kahneman and Tversky, startups cannot see their valuation coming down.
They focus on inflating numbers to avoid admitting failure. This results in risky startups getting propped up in hopes of miraculous turnarounds. The investors, on the other hand, are desperate to place their hands on the proverbial unicorn.
This gives rise to the herding effect. Once a marquee fund backs a startup, others often follow. They hope not to miss the next big thing.
When founders pitch “asset-light scale” or “frugal innovation,” investors often suspend judgment, ignoring poor unit economics. Thus, bricolage, originally a virtue, usually becomes a smokescreen for irrational exuberance. Here are two case studies that highlight the consequences.
Byju’s is based on a narrative of tech-led education. However, underneath was a model riddled with aggressive sales tactics, opaque finances, and high employee turnover. BluSmart claimed to be an asset-light EV platform.
Reports, however, suggest that vehicles were leased from affiliates at inflated rates, thereby masking the actual costs. Gensol has attracted green capital. However, there are ongoing questions regarding its network of subsidiaries and the transparency of its transactions.
These cases highlight the dangers of confusing clever financial engineering with genuine business fundamentals. Take Boat and OfBusiness as a counterexample. They started as bootstrapped ventures and scaled gradually.
Their storytelling aligned with their numbers. So, what’s the litmus test that early-stage investors and founders can rely on to gauge the robustness of the model they have created together? An actual test of start-up viability lies in two simple questions: Are unit economics improving?
Is the company transparent about its costs, margins, and dependencies? Stakeholders such as investors and promoters must align long-term sustainability goals with short-term profitability goals. This calls for structural reforms.
Investors should broaden their due diligence beyond spreadsheets by incorporating culture audits, vendor interviews, and operational stress tests into the due diligence process. Hence, the spotlight should be on sustainability metrics, such as margins, churn, and payback. It should not be solely driven by valuations based on capital flows and revenues.
This can be achieved by avoiding theatrical pitch. Moreover, regulators should mandate private market disclosures. Media should access data from the Registrar of Companies (RoC).
This is especially true for startups eyeing public listings. Lastly, when startups fail, the blame must not fall solely on the founders. Boards, VCs, and late-stage funders, who often override governance, must also be held accountable.
Summing up, India doesn’t need another unicorn. It needs camels, who scale sustainably, are grounded in transparency, and are driven by purpose. The true legacy of India’s startup movement will be written not in valuation charts but in value creation.
It needs to be all three — authentic, auditable, and enduring.