Over the last two years, start-ups have been showing remarkable progress in terms of profitability, with venture capitalists and private equity firms curtailing expenditure with focus on profit first than growth as per a report by Financial Express.
Travel tech startup Oyo, Honasa Consumer’s Mamaearth, and food tech major Zomato were the three unicorns that turned profitable along with Lendingkart (Ebtida profitable) and Mensa Brands' MyFitness in FY24.
According to Tracxn data, the progress shown on the profitable fronts in FY24 is higher compared to FY23 and FY22 as only two unicorns- Chargebee and Rivigo, and only one start up, Digit Insurance turned profitable combined, adds the report.
In FY24, eight other startups have reported profits in either Q3 or Q4 of the year with one in Q1 of FY25. Out of the nine, five including Delhivery, Myntra, Mobikwik, Meesho, and Urban Company- are unicorns with Delhivery and PB Fintech turning profitable in Q3 and Myntra posted profits in Q3 and Q4. Awfis and Sugar cosmetics were profitable in Q4, Mobikwik in the first half of the year, Meesho in Q2, and Practo in Q4 (Ebitda level). Urban Company has posted profits in Q1 of the current fiscal, the report stated.
Analysts believe that there has been an ongoing shift from "growth at all costs" approach to focusing on operating efficiency in the financials of startups.
“In every boardroom conversation, achieving profitability is a clear lever for startups. To come into public markets, a lot of investors will value profit,” Karan Taurani, senior vice president and research analyst, Elara Capital told FE.
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Owing to their advantage in terms of operation efficiencies and economies of scale, startups have come back on track states Taurani. Though this approach is set to stay, analysts state that profitability however should not come at the expense of costing overall health and long-term success.
Some startups like MyGate have been chasing zero cash burn. “Two years ago, the company took a call that it would aim for zero cash burn and cash break-even by December 2023. We achieved that,” Abhishek Kumar, founder and CEO, Mygate had told FE earlier.
Taurani reportedly said startups have come back on track also because they are getting the advantage in terms of operating efficiencies and economies of scale. This approach is here to stay, say analysts. However, they also warn that profitability should not come at the cost of overall health and long-term success.
As per the reports, an expert feels that startups should avoid rapid scaling without adequate operational control as that can lead to inefficiencies and increased costs, undermining long-term profitability.
