INDIA'S UNICORN BOOM

It has been a rich period for India’s start-up ecosystem, with as many as 48 newborn businesses riding the new digital wave to command valuations of $1 billion or more. Can they live up to their early promise and create sustainably profitable businesses?

In the jungle that is today’s business environment,?unicorns—defined as technology-driven, disruptive, privately-owned start-up companies valued at over $1 billion?(Rs 7,430 crore)—have shown a rare immunity against the waves of the Covid-19 pandemic that have brought most other businesses down to their knees.?

In 2021, amidst a debilitating Second Wave, India acquired 11 new unicorns, taking the total to 48, the third-largest number in the world, after the US and China.

Leading the pack is?Byju’s, a Bengaluru-based ed-tech firm founded by Byju Raveendran, 40, and Divya Gokulnath, 34, in 2011. A completely offline model till about six years ago, Byju’s is now a fully online education company with over 100 million users in India. In June this year, at the peak of the pandemic, its valuation jumped to $16.5 billion (Rs 1.2 lakh crore) after the world’s top investors poured in big funds, making it India’s most valuable unicorn.?It is, in fact, what in industry parlance is?called a decacorn (commanding a $10 billion or Rs 74,280 crore valuation or more) and is the world’s 11th most valued start-up.

Power of Big Ideas?

Behind every unicorn, there seems to be a breakthrough idea. But there is also more than just that. Gritty Indian entrepreneurs have, by dint of their innovation and perseverance, spotted a unique business positioning that attracted piles of financial backing and enabled them to script such unique and inspiring success stories as that of Byju’s. These companies have not risen from the ashes of the pandemic. The foundation for their phenomenal growth was laid by India’s finest infotech companies, set up in the 1990s, which created a conducive ecosystem and inspired a new, young breed of tech entrepreneurs to put their faith in the power of technology and pursue their digital dreams in the new millennium.?

#3 India’s rank in number of unicorns, behind US and China

India added more than 1,600 tech start-ups in 2020, making it the world’s third-largest tech start-up hub,?, taking total tech start-ups in India to 12,500

11 companies attained unicorn status in the first four months of 2021. This is an achievement, considering 12 startups entered the unicorn pantheon in all of 2020

REWRITING THE RULES

Indian unicorns have challenged the status quo in many sectors, but they have flourished the most in financial technology and software as a service (SaaS) businesses

There are other major global trends powering the unicorn surge in India. The sharing economy, with its philosophy of collaborative consumption and on-demand services, saw the phenomenal growth of companies such as Uber and Airbnb that inspired young Indian entrepreneurs to set up Ola and Oyo, offering similar services. It also saw the emergence of e-commerce companies, including big boys like Amazon and India’s Flipkart. With the pandemic shaking up traditional ‘contact’ businesses, these new-age enterprises rode the digital wave where customers want everything delivered at their doorstep, be it medicines, clothes, gadgets, food or furniture, not to mention a whole range of B2B (business-to-business) activity that has moved online.

Share and Thrive Economy

Quiet but Quantum Leap?

Aiding the growth of these start-ups are higher internet penetration and improving connectivity and bandwidth.?

43 % of India’s population, or roughly 622 million people, are active internet users. The rural internet surge is unmistakable.?Mobile phones continue to be the devices of choice for accessing the internet in urban and rural areas. India is likely to have 820 million smartphone users in the next two years.?In India, consumers use data like they use water.?Penetration of data is everywhere, the payment ecosystem is thriving, and most payments have gone digital.??A biometric digital identity, bringing businesses on to a common digital platform through the Goods and Services Tax, competitive offerings by telecom companies that have fuelled data consumption have helped. The bank accounts of Jan Dhan account-holders have been authenticated, thanks to Aadhaar.?There is now the data of the silent 100 million.?

A Flood of Funds?

Eagle-eyed investors, most of them prime overseas private equity funds, are snapping up every opportunity that comes their way, helping these entrepreneurs build the arsenals that will make them leaders in their businesses. Funding, in fact, has reached stratospheric levels.??11 companies attained unicorn status in the first four months of 2021.?The start-up ecosystem counts this as an achievement, considering that 12 start-ups entered the unicorn pantheon in all of last year. This is not an overnight boom.?This is the result of years of hard work.” Of India’s 48 unicorns, the most are in financial technology, or FinTech, followed by retail and software.??What has also helped is cheap global capital as the US Fed continues to maintain interest rates near zero. “There is huge liquidity in the market,” says Choksey. In addition to foreign firms such as the US-based Tiger Global, Singapore’s sovereign fund Temasek and Japan’s Softbank, several private equity investors, such as Accel, Sequoia Capital, Steadview Capital and Helion Ventures, are funding Indian start-up entrepreneurs.?Experts say India is an attractive destination for such funds as most other key markets in Asia, particularly China, are getting saturated. China already had 251 unicorns in April, with a total valuation surpassing $1 trillion.?

Too Good to Be True??

Many observers are puzzled that top investors continue to pump big money into start-ups even when they have been making sustained losses. Even Flipkart, India’s marquee start-up, which is 14 years old and now owned by US retail giant Wal-Mart, continues to make losses.?There are business models where you need to get a lot of users, and then look at Monetisation.” A large number of tech companies today took 10-15 years to turn profits. “We have been able to find the balance between fast and sustainable growth. There are sectors where you initially focus on hyper-growth and then Monetisation.

Experts call the model ‘Blitzs-calling, in which a start-up expands at a breathtaking pace through a large injection of funds and price cutting to gain a dominant market share that dwarfs the competition.?Some experts warn of a bubble, but?market leadership is key. For that, a unique distinction is important, and innovative ideas, along with sufficient capital, help create that. “It is a last-man-standing game. The idea is to create a “watering hole” where customers have no choice but to keep returning to the company for their products or services. He cites the examples of Amazon and Netflix which incurred losses for several years before their models began to make money.?

Digital ventures also do not have the limitations of scalability traditional businesses face, making them attractive to investors. All you need is market leadership. Once that is established, and the company has a handle on the expenses (‘burn rate’), new investors can be bought in, even if the companies are making substantial losses.?

The Roadmap Ahead?

Soaring valuations have also fuelled concerns about the sustainability and valuations of these business models. The cash burn is massive and domestic investors and advisors caution that the Indian start-up universe is inflated. An advisor to several startups explains how two types of entrepreneurs have emerged—those who focus on the real business matrix, and others who focus on the funding/ vanity matrix. They believe the financially prudent will have their day.?India is at a unique tipping point in its start-up history. The efforts over the years have bred a formidable stable of start-ups that have upended traditional business norms. Their future trajectory, though, will be determined by ideas, execution, ease of doing business and sound business principles, away from all the noise and pomp.?“It’s one thing to look at the valuation of unicorns today, quite another to foresee their expected value tomorrow”