(The Weekend Insight) - The Graveyard of Unicorn Dreams

In today’s deep-dive, we look at a hidden truth behind India’s booming startup world wherein many startups with good initial growth never reach a happy ending. They raise lots of money, grow fast, hire big teams; and then shut down quietly. These startups don’t get sold, don’t go public, and often don’t last more than a few years. This report is about “Exitless India” - a place where starting a company is easy, but finishing the journey is very hard.

Introduction

In 2015, a young founder in Bengaluru quit his high-paying job to start a food delivery venture. He secured crores in venture capital, hired several employees, and dreamt of building the next Swiggy or Zomato. Fast forward a year, his startup’s office was empty and computers are gathering dust. The company had shut down, joining a growing list of Indian startups that flared brightly before fizzling out. Unfortunately, this isn’t one such story; there are many such companies in India’s startup ecosystem.

Despite a booming startup scene with thousands of new companies and several unicorns, many of these ventures never reach a successful exit – be it an IPO or acquisition. Instead, they stagnate, shut shop, or struggle to survive, turning India into what some call a graveyard of great startups.

The Unicorn Boom

Over the past decade, India’s startup ecosystem has exploded. By 2022, India had over 100 unicorns, making it the world’s third-largest startup hub. Success stories like Flipkart, Ola, Zomato, and Paytm inspired a generation of entrepreneurs to chase their startup dreams.

However, while funding rounds and valuations skyrocketed, exits - a point where investors and founders cash out - were few and far away. In Silicon Valley, startups often get acquired by tech giants or go public, rewarding their backers. In India, these outcomes were rare for years. In fact, lack of exits in Indian startups has long been the biggest concern for global investors. Many venture capitalists wondered: Will these billion-dollar startups ever actually return money?

For most of the 2010s, the exit drought persisted. By 2016, India had nine unicorns worth a combined $36 billion, yet almost none had listed on the stock market. Investors joked that India was great for building startups but not for exiting them. The term “exitless India” started making rounds, capturing the irony of an ecosystem that could create valuable companies on paper but struggled to convert that into real investor returns.

Consider Flipkart, often hailed as India’s startup poster child. Founded in 2007, it grew into an e-commerce behemoth. Investors poured in over $7 billion, waiting for a payday. That finally came in 2018, when Walmart acquired a 77% stake in Flipkart for $16 billion. This was one of the largest startup exits India had ever seen, and it validated the dreams of entrepreneurs and showed the world that a homegrown startup can deliver a world-class exit. The startup community was excited and thought that this landmark deal would open the floodgates for more big exits. While, it did inspire many founders, but nothing much changed. Flipkart’s exit was like lightning in a bottle - brilliant, but hard to repeat.

Real change only came a few years later. In 2021, as global capital surged and markets turned frothy, India saw a rush of IPOs and acquisitions. That year, nine unicorn startups achieved exits (seven via IPOs and two via large acquisitions). Companies like Zomato made a stock market debut, while others like Blinkit (Grofers) got acquired by bigger players. It seemed the ecosystem had hit an inflection point – moving from celebrating each new funding round to finally celebrating exit events. By early 2024, about 20 of India’s approximately 114 unicorns, had managed an exit of some kind.

This was progress, but let’s do the math: it’s roughly 18% of unicorns. In other words, over 80% of India’s highly valued startups are still “exitless”, struggling through paper valuations and awaiting their turn to realize those valuations. The median time to exit for those that did was over 10 years, which is a long haul for founders and investors. And outside the unicorn club, thousands of smaller startups never find a buyer or go public at all. They either keep seeking the next funding round or quietly shut their shop.

When Great Startups Become Cautionary Tales

For every Flipkart or Zomato that breaks through, there are dozens of once-bright startups that faced a more terrible end. The Indian startup graveyard is filled with names that were media darlings and VC favorites – until they weren’t.

Take TinyOwl, for example. This Mumbai-based food ordering startup was the toast of 2014, raising about $23 million from top-tier investors like Sequoia and Matrix. Young and ambitious, TinyOwl rapidly expanded to multiple cities. But by late 2015, trouble was evident – bloated team, high cash burn, and no profits in sight. The startup had to fire over 300 employees. By 2016, TinyOwl shut down most of its operations, effectively merging into a rival. One of its founders admitted they had “spent money like crazy” chasing growth, only to hit a wall. A company that once looked like the next big thing in food-tech became a case study on “how not to scale*”*.

Another example could be Peppertap, a hyperlocal grocery delivery startup that was an alternative to BigBasket and Grofers (Blinkit). In 2015, grocery delivery was the hot sector. Peppertap raised about $51 million in just 18 months, expanding its service to many cities. Yet, by mid-2016, Peppertap abruptly shut down. According to its founder Navneet Singh, as they expanded to smaller cities, the delivery logistics fell apart and operations became “fragmented and lethargic,” and the model simply didn’t work outside metro cities. Essentially, they scaled too fast without getting the core model right. Investors lost their money; and employees were let off.

TinyOwl and Peppertap are just two of many examples. We saw Housing.com, once valued at ₹1,500 crore, implode amid management chaos and eventually got sold for a fraction of its peak value. We also saw Stayzilla, a pioneering budget hotel startup, shut down under financial issues and a controversial founder arrest. Cafe Coffee Day wasn’t a tech startup, but the tragic 2019 suicide of its founder VG Siddhartha, after mounting debt and alleged tax harassment, became a somber symbol of the immense pressure on Indian entrepreneurs.

The list of promising startups that ultimately failed is long. From Edtech to e-commerce, health-tech to fintech, no sector has been immune. In fact, the raw numbers behind India’s startup boom paint a bleak picture. More than 28,000 startups in India shut shop in just the past two years (2023 and 2024), a twelvefold increase compared to the preceding three-year period. High-profile startups such as Lido Learning and GoMechanic became examples of failure. But thousands of lesser-known startups also closed quietly due to cash crunches, weak unit economics, or cut-throat competition. It’s clear that starting up is easy in India today – but staying alive and exiting successfully is another story.

Why Indian Startups Struggle to Find a Way Out

There are several unique challenges and issues that makes India a “graveyard” for so many startups, including the well-funded and high-potential ones.

• Shallow Acquisition Market: Unlike the US or China, India historically hasn’t had many large tech companies eager to acquire startups. American giants like Google, Facebook, or Amazon routinely buy out startups in their markets. In India, big corporate houses have been cautious and slow in snapping up tech startups. Without deep-pocketed acquirers, many mid-sized startups simply run out of options – they either keep raising funds or eventually shut down if they can’t reach profitability.

• Late & Limited IPO Window: For years, Indian regulations made it tough for loss-making startups to list on stock exchanges. Only around 2021 did regulations relax, enabling tech IPOs like Zomato’s. Before that, even unicorns had to either become profitable or list abroad, which has its own challenges. As a result, an IPO wasn’t a viable exit route for most startups for a long time. Even now, public market investors in India are wary of high-growth, loss-making startups, which is evident from the volatile post-IPO performance of companies like Paytm and Zomato.

• Overvaluation and the Funding Bubble: In the mid-2010s, cheap capital led to heavy cash burn strategies, resulting in high spends on discounts, customer acquisition, and expansion without a clear path to profits. Many startups chased valuations ahead of value creation. A veteran investor T.V. Mohandas Pai said “The process of calculating valuation ahead of value creation burnt a hole in the pockets of many startups”, reflecting on the 2015 boom and bust. In plain terms, startups were building over-ambitious images on paper. When reality caught up, in the form of market corrections or a funding winter, all those papers were thrown in dustbins.

• Copycat Ideas, Low Differentiation: Through the 2010s, a lot of Indian startups were essentially “me-too” ventures, replicating proven models from abroad (such as daily deals, food delivery, ride-hailing) without much innovation. This led to overcrowded sectors with minimal differentiation. As one startup accelerator CEO put it, the lack of unique IP or technology meant many ventures had “no moat”. When competition intensified or a global player entered the market, these copycats couldn’t survive. For example, several food delivery startups mushroomed, but most died when Swiggy and Zomato pulled ahead. Uber’s entry crushed several local cab-hailing apps. In short, if everyone is building the sixth version of the same idea, most will fail to find loyal customers.

• Regulatory and Infrastructure Hurdles: Beyond market dynamics, India’s business environment can be hostile to startups. Bureaucratic delays, policy flip-flops, and poor infrastructure becomes headache. One such example was Mumbai-based healthtech startup that developed an innovative cold-chain logistics system to transport blood to hospitals. Their solution could save lives. But to operate their advanced storage units, they needed a routine license from the city authorities. Thanks to red tapism, that single license took 18 months. In that time, the startup’s funds dried up, partners lost patience, and the company collapsed. These are not just one-off stories - there are many.

• Cultural Attitudes and Stigma: In Silicon Valley, a failed startup is often a badge of experience; while in India, failure is a stigma. Bankruptcy laws were draconian until recently, meaning founders of failed businesses were chased by creditors and law enforcement agencies. This resulted in struggling founders reluctant to shut down or sell for cheap, hoping for a miracle. Pratyush Rai, founder of a failed AI startup, observed, “Failure in India hurts more than in the US. Failure in the US is a pit stop; failure in India is a dead end.” That mindset means fewer second chances and also fewer quick acqui-hire exits (where a big company buys a startup mainly for its team).

• Investor Dynamics: Many global investors joined the Indian bandwagon drawn by the huge market, but some didn’t fully grasp local challenges. When expected exits didn’t materialize, investor fatigue set in. By the late 2010s, some early-stage backers became impatient by the wait for exits and pulled back on new investments. Fewer follow-on funds meant promising startups could suddenly hit a funding wall. Moreover, venture capital funds have a 10-year lifecycle typically – if startups haven’t exited by then, those VC firms face pressure from their own investors (the LPs). This has led to a push for “unit economics” and consolidation since 2019 – basically, VCs telling startups to shape up for exit or shut shop.

The Human Face of an “Exitless” Ecosystem

It’s easy to discuss startups in terms of numbers – funding raised, valuation, burn rate, etc. But each failed or exitless startup represents human stories of dreams, sweat, and a heartbreak.

Founders of failed startups have spoken about the psychological toll. Unlike in the West, an entrepreneur shutting down his company in India may face social scorn – “I told you so, business is risky!” – rather than encouragement to try again. The Cafe Coffee Day incident in 2019 was a chilling reminder of how stress can overwhelm even seasoned entrepreneurs. While that was an extreme case, founder burnout is rampant. Many startup leaders have quit (even if their startups survived) due to mental and physical exhaustion - in the race of chasing an good exit amid constant firefighting.

Employees also face the heat. During the 2016 funding crunch, several startups downsized or closed. At TinyOwl’s office, for instance, laid-off employees were so furious over pending salaries that one founder was allegedly held hostage for hours until the police intervened – an illustration of how quickly the glamor can turn ugly. When a venture fails, hundreds of employees can suddenly find themselves jobless. The good news, if any, is that experienced startup talent in India’s market still remains in demand. Skilled employees from shut startups often get absorbed by other companies quickly. In fact, acqui-hire deals have become common, softening the landing for some. But for the founders and early team, seeing their dream die is an emotional trauma that remains for years.

Signs of Change

Amidst these troubling sings, India's startup world is also maturing and growing up. In the past few years, some good things have started happening that could gradually make things much better:

• IPOs and Public Markets Opening Up: The successful listings of tech startups like Zomato, Nykaa, and MapMyIndia in 2021-22 showed that Indian public investors are willing to bet on tech businesses, at least the stronger ones. Regulations were updated to accommodate new-age companies. Domestic IPOs have now overtaken mergers & acquisitions as the top exit route for Indian startups. While not every startup will make it to an IPO, the fact that seevral of them have done it means there’s a plan now. Founders are more focused on getting the business IPO-ready (improving metrics, corporate governance) from early on.

• Global Interest and Acquirers: Global tech giants and investment firms are keeping an eye. Facebook invested in Jio Platforms, Walmart bought Flipkart, and Google acquired startups like Halli Labs in AI. As Indian startups are building more innovative products (especially in SaaS, fintech, and deep tech), they’re catching the eye of international buyers. Even Indian conglomerates (Reliance, Tata, etc.) have started acquiring startups to boost their offerings.

• Secondary Exits for Investors: One uncovered development is the rise of secondary transactions – where investors sell their stake to other investors or funds, even if the startup isn’t exiting fully. This gives early backers some return and keeps them interested in the ecosystem. It’s not as headline-grabbing as an IPO, but it addresses the liquidity crunch. VC firms like Blume Ventures have noted that secondary sales and partial buyouts are becoming more common as the pool of late-stage investors grows.

• Focus on Sustainable Models: The exuberance of 2015 taught everyone a lesson. As one early-stage investor put it recently, the shakeouts of 2023-24 are a “natural weeding out of unsustainable models”, which in the long run will lead to stronger startups. Many founders now talk about profitability and unit economics with the same passion that they once talked about GMV and growth rates. A more grounded approach means startups that survive are more likely to reach a point where an acquirer or the public markets find them attractive.

• Government and Policy Support: The Indian government, for its part, is aware of the challenges. Programs like “Startup India” and “Make in India” are aimed to improve the landscape, although the results are mixed so far. There’s pressure on policymakers to streamline regulations, improve ease of doing business, and offer incentives for acquisitions and R&D. It’s a slow path, but dsicussions between startup founders and government have become more frequent.

In short, the narrative might be slowly shifting from “Exitless India” towards an ecosystem that does produce returns – although after testing everyone’s patience. The rough patch of 2023 (the funding winter) forced many companies to either shut down or consolidate, but those who navigated it are coming out leaner and more resilient.

Conclusion

For years, India was dubbed a “graveyard of startups” in hushed tones. Too many great ideas seemed to die before blooming, and even successful startups remained in limbo without exit pathways. But if you zoom out, it’s clear the Indian startup story is still in its early chapters. Silicon Valley spent many years learning how to create successful startups. India is trying to do the same thing in a much shorter time, and that's creating some challenges

Stories from India's startup scene teach us a lot. Founders have realized that getting a high company value isn't the same as building a business that lasts. Investors have learned to be more careful about exciting new trends and to actively help startups plan how they'll eventually sell or go public, instead of just throwing money at them. The employees, media and the government has learned that startups aren't just a cool fad, but a serious long-term game that needs everyone's help to succeed.

India may have been exitless for a while, but it won’t be forever. Asomeone once said about startups: “It’s only a failure if you don’t learn from it.” The Indian startup ecosystem is learning, evolving from a graveyard of great startups towards a landscape where the next great startup might actually make it to a happy ending.