DailyPost 2081

The sprint between the business idea to becoming a Unicorn has been the copybook business case study of the start-up dream. Creating a business as an enduring entity over time and space and delivering a brand which remains for eternity, so to say, is not aspirational for them. Making it overly simplistic, it means better financial comfort and lifestyle, compared to a job, for the founders. Additionally, if it brings public adulation and limelight, all the more better. Celebrity fanfare Indians revel in, funding and valuation, on whatever may be the parameters propels them into the elite business club. Creating business and aiming to be a celeb, the start-up route are two totally different parameters of life, overlaying one over the other has not worked, will not work.

Form rags to riches has been transformed into business ideas to riches. 60,000 of them determined to take India to the $5 trillion club. The start-up lifecycle can be aptly defined as valuation – funding – valuation – funding lifecycle. The ones getting into the escape velocity reach the IPO stage, but that too is not guarantee of their inherent business value. The recent escapades into the IPO glass ceiling also have not been enough to maintain growth and customer confidence. The valuation is in the dock, given the muted response to giant IPOs. Their crash should be taken as a lesson for a lifetime. Business cannot run on steroids; it has to be brick and mortar. We already have Unicorn Street in Bangalore. We have also heard of a unicorn couple. Creating an unicorn has become the business idea, who is bothered about the real business idea and its organic growth to success.

The investors’ faith by way of even a huge funding, for long has remained an unvalidated parameter of the inherent value of the business being created and the business trajectory it has decided to take. The investors also remain a party to the decisions. God knows how many of them have created mammoth business successes in their lifetime. No iconic business story can be repeated, but in reality, the start-ups are convinced of making a cut-copy-paste model out of it. The ecosystem also supports this sort of a thought process and the country tries to gain a mileage out of it, having invested time, energy and funds into them. The analogy of start-ups with subprime meltdown, increase in high risk mortgages, its default and ensuing recession, might not be proper, but the start-up direction has been surely risky.

It seems that the problem statement posed to this ecosystem is how to create more unicorns, rather than robust businesses. That start-up is a business seems to have taken a back seat. The start-ups seemed to have cracked the exam winning formula of the investors. Maybe they were also playing game. If the evaluation and the valuation mechanism is put to public scrutiny, there are enough practitioners, who can rip it open. From idea to the business plan, to background of the promoters, to assessment of market and can be evaluated in a variety of ways and none can be anywhere near the objectivity claimed. Uncerticity and untrodden business path as to be accepted as a truism. Standard metrics, such as, profit after tax (PAT), and EBIDTA and cash flow are given a go by. The impressive losses hits nobody hard. They live and thrive on valuation based on largely opaque formulas, multiplying at every funding round.

Sanjay Sahay

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