Why Indian founders are reducing their stakes in unicorn start-ups
What's the story
Over the last six years, the stakes held by founders in India's unicorn start-ups have witnessed a sharp decline.
The trend stems mainly from company heads diluting their ownership to raise capital in a tough funding climate.
As per data from Tracxn, a market intelligence platform, the median stake that founder groups hold in their unicorn start-ups has steadily declined over the past six years from 24.6% in 2018 to just 13% in 2024.
Source
Data from 102 unicorns were collected
The data includes information collected from India's 102 unicorn start-ups valued at or over $1 billion. The trend comes amid a wave of resignations among founders at leading start-ups, who are stepping down due to market pressures, sectoral challenges, or to start new ventures.
Reason
Ongoing funding winter to blame
Industry stakeholders attribute the dilution of founder shares to the ongoing funding winter.
This has forced founders of most start-up businesses, including unicorns, to prioritize unit economics, cutting the burn and extending cash runways.
Sandeep Murthy, Managing Partner at early-stage venture capital firm Lightbox said, "In a challenging funding environment, if the choice is between taking a little bit of a knock on ownership to raise fresh capital or letting the business shut down, most founders would choose the former."
Change
A sign of a maturing ecosystem
Some experts see this trend as a sign of a maturing ecosystem, where founders are more willing to give up share to secure capital and scale rapidly.
V Laxmikanth, Managing Partner at Pavestone Capital, said, "It is the maturity of the founders to understand that, in order to scale, they need a lot more expertise and capital."
Strategy
A strategic move by founders
Reducing ownership in start-ups could also be a strategic move by founders to sidestep increasing regulatory scrutiny, particularly for firms that are close to going public.
This could also help them evade the compliance burdens.
Despite the trend, some founders still own a majority stake in their companies.
As the funding environment continues to improve, investors expect the ownership dilution pattern among founders to stabilize.