TO STUDY THE FACTOR INFLUENCING FAILURE OF NEW UNICORN IN INDIA

Author: Khushi Saini, Quantum University, Roorkee , Uttarakhand

Abstract

India's startup ecosystem has experienced an exponential rise in unicorns—startups valued at over $1 billion—propelled by innovation, investment, and market opportunity. Yet, several of these unicorns have failed or drastically declined due to strategic, operational, and governance-related shortcomings. This paper investigates the multidimensional factors influencing the failure of unicorns in India. Using a hybrid research methodology of case studies, expert interviews, and secondary data analysis, the study identifies key failure triggers: flawed business models, unsustainable cash burn, leadership crises, governance lapses, and regulatory non-compliance. It concludes with recommendations for founders, investors, and policymakers to adopt a more sustainable and ethical growth paradigm.

Key Words: Unicorns, Startup Failure, Indian Startup Ecosystem, Governance, Business Strategy, Venture Capital

Introduction

India has emerged as a global startup powerhouse, with more than 100 unicorns spanning industries from fintech to edtech, e-commerce, and healthtech. However, the sheen of billion-dollar valuations is increasingly being questioned as several unicorns—despite raising millions in venture capital—have collapsed or significantly downsized. While funding and valuations dominated headlines, these startups struggled with monetization, governance, market adaptability, and sustainability.

Unicorn failure in India reflects a deeper structural and strategic malaise that warrants rigorous academic and policy attention. With investors becoming more discerning and consumers more critical, this study explores the multidimensional reasons for unicorn failure in the Indian context. Through comprehensive analysis and primary insights, the research offers a roadmap for course correction and resilience in the startup ecosystem.

Objectives

To identify the critical internal and external factors leading to unicorn failure in India.
To examine the role of leadership, funding strategy, and governance in startup collapse.
To propose strategic and regulatory recommendations for sustainable unicorn growth.

Literature Review

1. Growth of Unicorns in India

The Indian startup ecosystem has grown rapidly, backed by venture capital funding, government schemes like Startup India, and digital adoption. As of 2024, India had over 100 unicorns. However, studies (NASSCOM, 2023; CB Insights, 2023) show that up to 15% of these firms are defunct or inactive, revealing a disconnect between funding and fundamental value creation.

2. Business Model Flaws

Startups often chase growth over sustainability. Literature (Ries, 2011; Ghosh & Bhatia, 2022) emphasizes that many unicorns operate without clear unit economics, resulting in unsustainable burn rates and eventual collapse.

3. Governance and Leadership Gaps

Corporate governance failures have led to major unicorn setbacks, as seen in Zilingo, BharatPe, and GoMechanic. Studies (KPMG, 2023; Chakraborty, 2022) highlight the absence of checks and balances, lack of board independence, and founder mismanagement as leading contributors.

4. Over-reliance on External Capital

Many unicorns depend heavily on venture capital without creating self-sustaining revenue streams. Misuse of investor funds and unrealistic projections have eroded credibility (Bain & Company, 2023).

5. Regulatory Non-Compliance

In sectors like fintech, healthtech, and edtech, startups often expand before complying with statutory frameworks. Lack of legal due diligence has led to fines, operational halts, or closure (NITI Aayog, 2022).

6. Employee Turnover and Culture

Toxic work cultures, unrealistic KPIs, and leadership conflicts contribute to internal breakdowns, hampering operational efficiency and innovation (Forbes India, 2023).

7. Research Gaps

Few empirical Indian studies explore unicorn failures using a multi-stakeholder lens. There is a need for contextual, policy-oriented analysis that considers market, cultural, and regulatory frameworks unique to India.

Research Methodology

1. Research Design

The study uses a mixed-method exploratory research design to understand strategic and operational factors leading to unicorn failure.
Exploratory: To identify systemic causes and stakeholder perceptions.
Descriptive: To analyze patterns in failed unicorns.
Analytical: To assess correlations between funding, leadership, and failure.

2. Research Objectives

To examine trends and patterns among failed unicorns.
To analyze governance, funding, and business model decisions.
To assess investor and consumer perspectives on unicorn failures.
To recommend frameworks for risk mitigation.

3. Research Questions

What are the key operational and strategic reasons for unicorn failure in India?
How do governance and leadership influence startup success or collapse?
What is the impact of over-funding and unsustainable growth strategies?
How can policymakers and stakeholders create better risk oversight?

4. Data Collection Techniques

a) Primary Data

Interviews: 15 startup founders, investors, and analysts
Consumer Survey: 200 consumers on brand trust after unicorn failures
Expert Panels: Policy makers and startup ecosystem enablers

b) Secondary Data

Sources: CB Insights, Crunchbase, Economic Times, NASSCOM, company reports
Cases: Zilingo, GoMechanic, Lido Learning, Trell, and others

5. Data Analysis Methods

Quantitative: Frequency and correlation analysis using SPSS
Qualitative: Thematic coding using NVivo software
Comparative: SWOT and PESTEL analysis of failed vs. surviving unicorns

6. Theoretical Framework

The study is based on the Resource-Based View (RBV) and Corporate Governance Theory, emphasizing that internal capabilities and institutional controls are critical for long-term survival.

7. Scope and Delimitations

Focused on unicorns between 2015–2025
Excludes companies not classified as unicorns (valuation <$1B)
Does not focus on external economic shocks like pandemics

8. Ethical Considerations

Confidentiality of interviews was maintained. No company-specific financial data was disclosed without permission.

9. Expected Contribution

The study fills an important gap in Indian entrepreneurship research, highlighting preventive strategies for unicorn sustainability and offering guidance for ecosystem-level reforms.

Findings of the Study

1. Key Factors in Unicorn Failures

Unsustainable Business Models: 80% of cases lacked break-even strategies
Governance Breakdown: Over 60% showed evidence of board oversight failure
Overvaluation Pressures: Founders admitted exaggerating projections to secure funding
Lack of Product-Market Fit: 4 out of 10 unicorns expanded before validating demand
Non-compliance & Legal Issues: 50% faced regulatory penalties or FDI breaches

2. Investor and Analyst Feedback

Investors indicated due diligence was compromised in a "fear of missing out" environment.
Analysts emphasized that startups neglected risk and compliance teams in growth phases.

3. Consumer Perception Trends

65% of surveyed consumers said their trust in digital brands decreased after hearing of unicorn failures.
Consumers now prefer transparency and long-term value over hype.

4. Leadership and Culture Challenges

High attrition and toxic culture led to internal instability.
Lack of succession planning left startups vulnerable during crises.

Conclusion of Findings

The research concludes that unicorn failure is often the result of a combination of internal mismanagement, overdependence on external capital, lack of oversight, and unrealistic expansion. The study emphasizes the importance of founder ethics, investor caution, and regulatory vigilance to ensure a healthy and resilient unicorn ecosystem in India.