Beyond Unicorns: Why India's Startup Ecosystem Must Rethink Growth and Governance

Reconstruction of India's startup ecosystem must focus beyond vanity valuations to work on sustainable, transparent growth.

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 from platforms like Tracxn and Entrackr suggest 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 rounds of funding. The funding slowdown tells the tale as 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.

But 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 firstly repurposed tech, secondly, second-hand infrastructure, and finally, informal networks. India has its share of genuine jugaad stories. Zerodha scaled without external VC backing. They used tech-led automation to drive down 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 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 in the Byjus case, eventual down rounds as witnessed by Meesho’s and Cred, and sometimes, regulatory scrutiny as in Paytm’s case.

Most of the time, the buck stops with the founders and the investors. Why do company founders behave the way they do? This requires an interdisciplinary perspective. Behavioural economics seems to provide logical answers and clues. According to Prospect Theory by Kahneman and Tversky, start-ups 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, often becomes a smokescreen for irrational exuberance.

Here are two case studies that I present to bring my point home. Byju’s is based on a narrative of tech-led education. But underneath was a model riddled with aggressive sales, opaque finances, and high churn. BluSmart claimed to be an asset-light EV platform.

Reports, however, suggest vehicles were leased from affiliates at inflated rates. This helps mask real costs. Gensol has attracted green capital. However, there are ongoing questions regarding its network of subsidiaries and the transparency of its transactions. These cases signal the dangers of mistaking clever financial engineering for real business fundamentals. Take Boat and OfBusiness as a counterexample. They started as a bootstrapped venture and scaled gradually. Their storytelling aligned with their numbers.

Now, for the billion-dollar question. 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? A true test of start-up viability lies in two simple questions:

Are unit economics improving? Is the company transparent about its costs, margins, and dependencies?

The Way Forward: Accountability and Alignment

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 due diligence beyond spreadsheets by accommodating for culture audits, vendor interviews, and operational stress tests in the due diligence process. Hence, the spotlight should be on sustainability metrics like margins, churn, and payback. It should not just be valuations driven by capital flows and revenues. This can be done by avoiding pitch theatrics. 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 to account.