Understanding the funding and growth interrelationships in Indian unicorns

Abstract

Startup ecosystems in any geography are moulded by socio-economic-cultural factors of the region. This ecosystem is aided and abetted, among many other things by the presence of Venture Capital (VC) funds in the region. These VCs provide expertise, guidance and chiefly access to financial resources to the risky business models of the startups and shape the industry. Through our comprehensive literature reviews, we could conclude the importance of the startup ecosystem of a country in bolstering the growth of its economy. Thus, it is imperative to play close attention to the growth of startups of different kinds and the role played by VCs in shaping the same. In this paper we cover the global trends in startup space and how it skews the economy in agiven region, for example Silicon Valley. We then look at the role of VC specific to emerging economies like India, where they are regarded as ecosystem engineers that help fill institutional gaps and shape policy architecture. VCs use different parameters to evaluate startups - a lot of them intangible since these businesses are mostly in nascent stage with no predictable cash flow or even a fixed revenue model. Ultimately, we outline certain knowledge gaps in the existing studies, the major being the growth and funding relationship in the startup ecosystem, and unwillingness of VCs to invest in asset intensive businesses which are in reality the backbone of a growing economy. The objective is set out to understand the perception of growth by the VCs, their inclination towards asset/ R&D heavy business models and their view of scale translating to margins in the long run. We propose a framework for growth which is two-sided: one side focusing on the scale and reach of business (Winner-Takes-All strategy) and other on growth in profitability leading to sustainable business.