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When Aileen Lee originally coined the term “unicorn” in 2013, she wouldn’t have thought that from 39 unicorns across the world in 2013 there will be 586 unicorns, based in 29 countries and 145 cities in the year 2020. Such humongous growth in numbers resulted from multiple factors ranging from technological advancements, increased private capital to company buyouts, and fast-growing strategies. The total value of all known unicorns in the world was valued at US$1.8 trillion, equivalent to the GDP of Italy in the year 2020.
With the outpour of new unicorns, India took the front seat and added 14 new startups that were privately held and had a valuation of $1 billion & more. With the original prediction of adding 12 unicorns in the year 2021 by NASSCOM, India already surpassed that limit and is ready to add more as she will raise approximately $13.7 billion.
Another aspect that took leaps was the funding scenario. Investors infused a whopping amount of $4.4 billion into Indian startups in the January-March quarter of 2021.
(Credits: SoftBank)
The New Entrants
Five months into 2021, there have already been 14 new entrants to the renowned Unicorn Club. In the first nine days of April, the number of companies entering the club was cumulative of companies that entered in the years 2014 till 2017. With 7 more months to go before the year ends the prospects look extremely promising.
“It’s great for the ecosystem. Indian startups are coming of age,” reckons Deep Kalra, founder of online travel aggregator MakeMyTrip, which took a decade to turn into a unicorn.
The startups belong to varied domains and cover a huge spectrum of services. Digit Insurance (Insurtech), InnovAccer (Healthtech), Five Star Business Finance (NBFC), Meesho (Social Commerce), Infra.Market (B2B e-Commerce), CRED (Fintech), Pharmeasy (Healthtech), Groww (Fintech), Gupshup (Conversational Messaging), Mohalla Tech (parent company of social platforms ShareChat and Moj), Chargebee (SaaS), Urban Company (Services Marketplace), Moglix (B2B Commerce) and the latest —Zeta (Fintech) are the entrants into the unicorn party.
Digit Insurance was the first one in 2021 to value more than a billion dollars, at $1.8 billion by raising $18 million in the month of January from its existing investors like A(! PArtners, Faering Capital and TVS Capital. The company masters in providing customized insurance for health, vehicle, travel, cellphones, and commercial assets like stores and vacation homes, trying to simplify the jargon full industry. With the pandemic in place, the company witnessed a growth of 31.9% due to the increased sale of its illness insurance that offered protection against Covid-19 and seven vector-borne diseases.
Another popular name, CRED, a fintech startup by Kunal Shah raised $2.2 billion with big investors like Sequoia Capital India, Ribbit Capital, DST Global, Falcon Edge Capital, etc. The startup is in talks with popular brands like Big Basket, DineOut, etc. to have a stronger footing in the e-commerce industry along with its original aim to focus on premium credit card users, offering them rewards and benefits for paying credit card bills.
With Tiger Global leading the series D funding of Groww, it became the second wealth management startup in India after Zerodha became a unicorn. The aim to provide a user-friendly platform for investing in stocks, mutual funds, bonds, and the likes helps the financially unaware population to learn as well as earn.
The most recent entrant, Zeta, earned the spot in the club with a Series C funding led by Softbank. Notably, the company’s valuation increased by 4.8X from its last round. As more and more startups enter the club, the funding bus also gets crowded.
How India Minted Unicorns?
The basic reason behind the spike and rapid growth of companies is the confluence of demand and supply. 2020 was a tough year for most of the economy but what acted as a threat to a lot also acted as an opportunity. The demand for digital goods overcame previous set records.
Not only was the demand for digital content high, but it also helped a lot of startups to increase their valuation by manifolds. Prem Pavoor, partner and India's head at the venture capital firm Eight Roads Ventures, rightly explained when he said that there have been significant tailwinds driven by the pandemic around penetration and consumption of digital content and enabled services. The lockdown even acted as a catalyst for the accelerated need for enterprise software for which the Indian companies are emerging global stakeholders.
What changed in the previous year is how low the interest rates have fallen, especially in the US. The dollar infiltration is easy, the capital inflow is cheap making internet companies extremely lucrative. Add to it the 1 billion population that's actively involved on digital platforms, it creates a perfect blend for investment.
The pandemic provided a perfect platform as it expanded the total accessible market for most companies and across many categories such as e-Commerce, SaaS, Education, and healthcare. SaaS in particular saw clear signs of maturity, with average deal size increasing dramatically—from $14 million in 2019 to $25 million in 2020. The startups took in all they could from this opportunity and improved on the lines of business models, cut discounts, worked on order frequencies and take rates, and emerged as winners.
The mushrooming unicorns are basically the product of a developed and mature startup ecosystem that is creating market leaders continuously that adapt well to the new normal.
The Deal-makers
On the demand side, there has been an effective increase in the need for high-quality companies. Beyond the traditional investors, global private equity, VC, and hedge funds are also keen to take part in the Indian growth story. They were quick and provided attractive valuations. Many institutional investors and pension funds are also investing in digital enterprises, in addition to huge venture capital firms such as Prosus Ventures, Tiger Global, and SoftBank, who have made major bets on a number of local startups.
The most active later stage VCs of Q1 2021 were InnoVen, Sequoia Capital, Accel Partners, Tiger Global, Beenext, etc. The technology investor community has gone from looking for $1 billion outcomes to $10 billion or maybe $30-$50 billion outcomes within a matter of months. This explains high-priced rounds, and companies getting valued at over a billion dollars. Tiger Global and Softbank have recently even raised fresh funds with allocation to India.
K Ganesh, Serial Entrepreneur/ Promoter - Portea & Partner – GrowthStory.in, points out one of the threats among these opportunities. “Currently, the valuations are at a stratospheric level, which is untenable. Some amount of realism needs to come in,” reckons the serial entrepreneur and promoter of startups such as BigBasket, Portea Medical, and HomeLane.
Like in any bull cycle, many not so fundamentally strong models are born, and even get funded in the hype which at a later stage crumble against the immense pressure of the market.
Onwards to Heaven
The Indian startup ecosystem has evolved tremendously in the previous decade, from a handful of notable software businesses barely over five years ago to hundreds of inventive new firms today. So much so that the Indian government has decided to create National Startup Awards in 2020 to recognize the efforts and contributions of thousands of entrepreneurs in putting India on the global map of digitalization.
But as the valuations increase, one thing needs to be considered that being a billion-dollar company does not make it an enduring and successful company. With more capital comes more responsibility. For now, though, the Indian startup ecosystem is cheering the enduring, and galloping, unicorn story. There is no stopping the funding and at this rate, India will manage to get more than 100 unicorns by 2023.