From 0 to $100 million in 5 years – That’s how long startups founded in 2017 took to scale up, says Redseer report

• A report by Reedseer Strategy Consultants says that the time to scale for startups has gone down significantly between 2000 to 2017.
  
• Over 40 startups — unicorns and soonicorns — crossed $100 million in revenues in FY22, the report said.
  
• Fast-growing internet user base and capital availability are among a few reasons for hastening the pace of scale up.
  
• VCs invested about $143 billion over the last 15 years in the startup ecosystem.

The average time taken by startups to reach revenue of $100 million has gone down significantly in the last two decades, says a report by Reedseer Strategy Consultants. While it took 18 years, on average, for a startup founded in 2000 to hit $100 million in revenue, for a company founded in 2017, this took barely five years.

This fall in average time has been gradual – falling from 18 years for those incorporated in 2000, to 15 years for 2005 startups; to 10 years for those started in 2010; to around six years for 2015 startups and finally falling to 4-5 years for companies founded in 2017.

“With the ecosystem maturing in the last decade, the time taken to reach the $100 million mark has decreased significantly,” the report said.

This has seen over 40 startups — which are either unicorns or soonicorns – cross the $100 million revenue mark in FY22, the report said. These startups took anywhere between 5-12 years to hit the milestone.

The time to scale for unicorns in logistics and eB2B segments is six years, while the highest time is taken by gaming companies – at 12 years. For sectors like fintech, e-commerce, D2C and foodtech, the average time to scale is seven years.

VCs provide ‘growth funds’

As per Redseer, a fast-growing internet user base, capital availability, maturing businesses that are opening opportunities for enablers and more experienced operators are the reasons why time to scale has drastically reduced in the last two decades.

A large contributor to the ability of companies to scale at lightning speed is the maturing funding ecosystem — allowing startups to acquire customers and expand businesses.

“Venture capital has played a central role in helping startups scale to the 100 million revenue milestone. Besides the capital, investors add tremendous value to the companies they fund. In addition, the knowledge of governance, financial prudence, and networks brought by VCs are invaluable for startups,” the report said.

VCs invested about $143 billion over the last 15 years (2008 to 2022) in the startup ecosystem, which is currently valued at $804 billion, Redseer says. At current valuations, it translates to approximately 4.5x return for VCs on their investments.

How much money are startups making?

There are 12,000 active startups in India falling into three categories – emerging, growth stage and large startups as per Redseer. About 11,500, or 95%, of these are in the ‘emerging’ stage, making less than $10 million in revenue.

Those in the growth stage – companies that make between $10 million to $100 million – constitute a mere 3-4% of the ecosystem, with less than 500 startups making the cut. Startups that generate revenue to the tune of $100-$1 billion are around 40 i.e. 0.5% of the universe and only three startups generate revenue of $1 billion and over — as per Redseer.

A multitude of factors hit startups in their growth journey to scale, including — operating in niche industries that restrict their addressable market; their inability to sustain growth due to improper product market fit; or challenges related to organisation, governance and operations.

“Startups in the red ocean market - the industries with well-defined market space and industry boundaries, operate in a highly competitive environment. They need a unique competitive advantage to stay afloat,” the report says about another key challenge facing startups.

The report also said that inability of startups to demonstrate unit economics or path to profitability is among the key challenges that trip most startups on their route to the big companies’ club. This issue has not spared even the largest players – most listed players’ stocks have been punished by the stock market investors for their inability to demonstrate strong unit economics.

“Public markets listing, which is considered a litmus test for valuations, has ended up becoming a poisoned chalice for a few. For instance, some of the biggest value shedders in the 2022 Burgundy Private Hurun India 500 are start-ups such as Policy Bazaar, Paytm, Zomato and Nykaa which lost 68%, 59%, 50% and 48%, respectively in value since last year,” said Anas Rahman Junaid, MD and chief researcher, Hurun India while releasing the Burgundy Private Hurun India report in December 2022.

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