🧨 Why Funded Startups Still Fail: An Innovation Readiness Wake-Up Call
- krishnan62
- Jun 3
- 4 min read
And what Indian founders and investors must learn from the 2023–2025 collapse wave.
Over the last two years, India has witnessed a wave of startup failures—not just among fledgling ideas, but among well-funded, media-celebrated, “almost unicorn” ventures. From Dunzo and BluSmart to Koo, Toplyne, and Kenko Health, these startups raised millions and seemed poised for breakout success. And yet, they collapsed.
This isn’t just about funding winters. It’s not even just about execution errors.
🧭 The more profound truth? Many of these ventures failed not because of bad timing, but because they skipped the discipline of structured innovation.
📉 The Collapse Count: A Snapshot
Between 2023 and early 2025:
Over 28,000 startups in India shut down operations—a 12x jump from the 2019–2022 period.
Startups like BluSmart ($150M+ raised), Dunzo ($300M+), and Koo (~$50M) folded, despite scale.
Dozens more, such as Toplyne, Kenko Health, Thrive, and Greenikk, downscaled or shut down within 2 to 4 years of their funding rounds.
Many of them failed after reaching the MVP stage, or even after market entry, right when scale and commercialisation should have kicked in.
This isn’t just natural churn. It’s a structural failure to manage innovation risk at each stage of the journey.
🧩 Could These Failures Have Been Avoided?
The short answer: Yes, many of them.
By applying a more rigorous innovation discipline across the nine stages of innovation maturity, startups could have de-risked their journey. Let’s look at the most common breakdowns:
🔍 1. No Trend Mapping = Strategic Blindness
Most pitch decks highlighted market size. Few showed trend velocity or convergence.
Dunzo, for example, didn’t anticipate how the quick commerce gold rush would collapse under burn rates and shifting urban demand.
Koo ignored how content monetisation and platform trust were evolving.
Better Approach: Utilise structured trend frameworks, such as PESTLED, scenario mapping, and “Why Now?” analysis, to inform entry timing and prevent obsolescence.
⚠️ 2. Problem Framing Was Too Present-Day
Many startups solved for today’s pain, but not tomorrow’s.
Kenko Health built a model that failed due to regulatory misalignment.
GoldPe assumed digital gold would drive savings behaviour, without validating the core need.
Better Approach: Frame problems with foresight—anticipate how user needs evolve and explore multiple framings before committing to a solution.
🎯 3. One Idea, No Backup Plan
Too many teams jumped from problem to “the” solution without exploring options.
Toplyne and InsurStaq locked into a specific architecture without demonstrating why alternatives were ruled out.
Better Approach: Map 3-5 ideas. Show what you tested, why you chose one, and what you’d pivot to. Innovation is hypothesis testing, not wishful execution.
💣 4. Unvalidated Killers Were Ignored
Failure often stemmed from untested critical assumptions.
BluSmart underestimated fleet ops cost.
Greenikk offered farmer credit without testing repayment readiness.
Muvin built on a UPI model, which the RBI later banned.
Better Approach: Identify and test “killer assumptions” early. Do low-fidelity pilots—stress-test operations before scale.
📉 5. Business Models Were Treated as Facts, Not Hypotheses
Too many startups showcased polished Business Model Canvases with no evidence.
Stoa School, Thrive, and Bluelearn never truly validated their unit economics or conversion funnels.
Better Approach: Present your business model as an evolving one. Highlight assumptions. Mark what’s validated vs what’s not.
📈 6. Prototype-to-Scale Readiness Was Assumed
One of the most critical, yet often invisible, gaps in many failed ventures is that they jumped from MVP to market scaling without validating their readiness for scale.
Before expanding to new cities, categories, or customer segments, startups must ensure:
The technology is robust and maintainable
The value chain (supply, delivery, compliance) is ready for volume
The GTM strategy works beyond founder networks
The business model is not just possible, but profitable
BluSmart struggled with operations and cash flow the moment it expanded beyond NCR.
Dunzo scaled its dark stores aggressively before validating customer acquisition costs (CAC), retention, and vendor economics.
Toplyne couldn’t build repeatable sales success with SaaS clients outside its initial beachhead.
Structured Innovation Step Missed: Pilot-to-scale stress testing, commercial readiness validation, and internal systems planning.
🚨 Were These True Innovations?
Let’s be blunt.
Some of these ventures weren’t innovations at all.
❌ They lacked novelty
Koo = Twitter clone.
Thrive = Low-cost Swiggy.
Investmint = Yet another trading signal app.
❗ Others had novel concepts but shallow execution
InsurStaq and Toplyne were building in deep-tech or enterprise SaaS, but didn’t validate demand or ecosystem readiness.
Innovation isn’t just building something new. It’s bringing a novel, desirable, feasible, and viable solution to market sustainably.
If you haven’t tested your assumptions, validated behaviour change, and prepared for scale, you’re not innovating—you’re experimenting at someone else’s cost.
🧠 So What’s the Way Forward?
For startups:
Don’t treat fundraising as a milestone. Treat it as a by-product of de-risked learning.
Use innovation diagnostics to test every part of your journey—from trends and problems to go-to-market (GTM) and scaling.
For investors:
Don’t fund glossy pitch decks; fund teams with learning velocity and structured thinking.
Use tools like the 9-Stage Innovation Maturity Checklist to assess commercial readiness, not just passion.
For the ecosystem:
Move beyond founder storytelling. Ask for evidence of desirability, feasibility, and viability.
🗣️ Let’s Talk
I’m starting a conversation with founders, investors, and innovation leaders who want to build ventures that last, not just pitch decks that raise.
If you’re a:
Founder unsure of where your innovation journey is breaking down
Investor frustrated with flashy decks but shallow traction
Corporate innovator looking to build resilience into your ideas
👉 Let’s talk.
DM me. Book a conversation. Please invite me to speak to your cohort.
Let’s move from MVP to real innovation.
I run an innovation masterclass for leaders and do innovation due diligence. The innovation maturity checklist I have developed will quickly reveal many of the gaps.
💬 Call to Action for Readers
If this article made you rethink what innovation means, comment below with:
“What killed our startup?” If you’ve been through this
“Need a diagnostic” if you want to assess your venture
Or tag someone who needs to read this before they fund—or fail.
Krishnan Naganathan
Innovation Expert
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