Just when you got used to seeing the congratulatory/ self-congratulatory posts on India hitting the 100 Unicorns number, there has been one story after another on startups, or more accurately, privately held VC funded companies, failing to raise the next round of funding or valuations crashing 97%!

So, is the party over? For now, yes - as the easy money chasing dreams is not flowing quite so easily. The company 'may never be profitable' doesn't look so good on draft IPO prospectuses, making exits difficult.

The point is: Should you care if these startups don't get the next round of funding?

After all, the promoters of these companies have already got their Lutyens bungalows and family offices regardless of what happens to their private market (or for that matter, IPO) investors.

The VCs themselves have investors who are rich and sophisticated enough to have known the risks and can take the losses.

So, how does it matter in the real world?

It does because this space has been a major direct/indirect employment generator over the last few years - from company employees to 'partners' who drive/ deliver etc to those working at warehouses which may or may not be owned by the startups themselves, not to mention those working for companies that provide services to them.

Every company that goes belly up because it couldn't raise the next round/ needs to cut back results in real people losing jobs.

Leaving aside the humanitarian aspects of this, it can have a significant ripple effect on the economy.

Organised sector employees have been, along with stock market investors, more or less the only consumer segment holding up the economy over the last few years - something explained in more detail in this piece by Vivek Kaul.

Therefore an unravelling of demand from this segment can cause significant demand destruction in the economy. The ripples can go far.

From the desk of Devina Mehra

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