Unicorns in South and SE Asia need to reduce cash burn: S&P Global
Unicorns in South and Southeast Asia are finding it difficult to turn around operations due to the pandemic’s impact and competition, said a recent S&P Global report reminding businesses that “cash does not last forever”.
Unicorns—a privately held startup valued at over $1 billion—are at crossroads and will be prioritising, it said. Such start-ups are now following traditional firms in cutting costs, rationalising or exiting business segments where they don’t have competitive advantage.
“They need to choose between aggressively expanding to reach economies of scale or focusing on reigniting their businesses. Cash does not last forever. The start-ups can’t continue spending if operational turnarounds are delayed and cash balances are narrowing while fund-raising remains difficult.”
Unicorns have taken initiatives in recent quarters to achieve financial sustainability, such as centralising or rationalising operations. Some start-ups have taken dramatic steps to rein in spending, including layoffs. Cash preservation has become priority as raising funds becomes challenging
The report cited the example of India-based ANI Technologies, which operates cab aggregator Ola, for decisions taken to turn around operations. “The company has scaled back its growth aspirations overseas and non-mobility expansion to achieve profitability. The mobility business has surpassed pre-COVID levels and maintained profitability on a segmental basis,” it said.
“A further pivot came only months after ANI Technologies undertook a US$500 senior secured loan in January 2022. In August 2022, it repurchased US$350 million of the loan to reduce the negative carry on the back of lower capital requirements,” it added.
As per the report, these developments suggest that more unicorns could focus on turning around core operations at the expense of expanding their presence in new markets or vertical segments.
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