Once known as the next frontier for tech investments, India has seen many of its top start-ups seem to be going through a bit of a rough patch lately.
According to News Corp VCCEdge's quarterly deal report for 2017's calendar year first quarter, the value of start-up deals in India faced the worst quarterly performance since the third quarter of 2013 — with 165 deals made at a value of $237 million.
"Unicorns in India are facing issues related to profitability and (a) slowdown in funding," said Satish Meena, senior forecast analyst at Forrester Research.
Meena told CNBC that most of the companies, especially those in online retail, are struggling to bring profitability into their business as a result of over-expenditure on customer acquisition following Amazon's entrance into the Indian market in 2013.
Furthermore, Meena said, the problem has been exacerbated by an increasingly challenging regulatory environment — with more rules on discounts — and the government's push for demonetization in November 2016, making it difficult for start-ups to realize aggressive targets.
Echoing Meena's statements, Marcelo Ballvé, research director at CB Insights said "several of India's prominent e-commerce and food delivery unicorns have not fared well recently."
As a result, multiple high-profile unicorns have faced a reduction in valuation and fund raising efforts and the sector has seen an increase in consolidation.
For example, Ballvé cited the recent fundraising round for India's largest e-commerce retailer Flipkart, in which the company's overall valuation slid despite raising more than $1 billion.
Just a month before, its rival Snapdeal announced that it was laying off up to 600 employees due to over-expansion and diversification. In recent weeks, rumors have even started spreading about the possibility of an acquisition between the two companies, with VCCircle reporting that the deal could happen as early as this week.
Ballvé also added that food delivery unicorn Zomato was "losing millions every year and has not raised in nearly 600 days."
On the transportation front, a recent Economic Times article reported that transportation application company Ola suffered losses of Rs 2,313.66 crore (about $356 million) in the financial year of 2016 — nearly 3 times what it lost in the last previous financial year. The losses were a result of fierce competition from a foreign rival — Uber.
CNBC has reached out to Flipkart, Snapdeal, Zomato and Ola for comments regarding their recent performance, but has yet to receive a reply.
As with start-ups in many countries, India's unicorns are fighting to survive in a rapidly changing environment after enjoying years of venture capital funding.
"The reality is that India is by no means an immature market for VC," Ballvé said. "It may soon be time to put up or shut up as the market has not done a great job generating venture-level exits."
There have only been four exits valued at more than $500 million in the last 2 years in India, and none of them came from VC-backed companies, he said.
Ballvé did, however, offer some signs of hope, suggesting that investor sentiment remains positive as Flipkart's down round was backed by big names like Tencent, Microsoft and eBay. Flipkart even folded eBay India under its umbrella.
Ballvé also highlighted bootstrapped software as a service company Zoho, an Indian company officially headquartered in the U.S. which he said was "reported to be doing $310 million per annum in revenue." Also of note was payments unicorn One97 Communications, which was "seemingly doing very well," Ballvé added.
At present, only two out of India's 10 known unicorns have achieved profitability.
They are data analytics firm Mu Sigma — which was the county's first unicorn to achieve profitability and has been profitable for a number of years — along with InMobi, the mobile advertising platform which announced to the Times of India last month that it has been profitable since June 2016.
Despite the struggles of many Indian start-ups, some observers say the sector is simply getting started. On the mobile front, smartphone penetration in India lags well behind fellow unicorn-incubator China.
The latest research by the Pew Research Center reported that in 2016, smartphone ownership in India stood at 18 percent — up from its 12 percent figure in 2013. China, meanwhile, has smartphone ownership of about 68 percent and has been growing at a steady rate from 37 percent in 2013.
"The e-commerce market in India has a lot of room to grow as the market is still in the early stages with low penetration and not well-established online shopping behavior," said Sandy Shen, research director at Gartner.
Sounding positive on the future of e-commerce in India, Shen said consumers were likely to benefit in the form of better services as a result of increased competition. She added that competition from global players was likely to import the latest technologies and best practices from abroad, hastening the learning process for India's startups.
"The market is big enough to accommodate at least three major players. Of course, e-commerce is a scale game, so whoever gets bigger faster will also win big."