Rainbow unicorns.. and the hunt for the pot of gold
Vineet Mohan
Payments & Transaction Banking | Angel investor | Global experience (USA, UK / EUR, HK, IN)
The 'once' mythical Unicorn..
In November 2013, Aileen Lee coined the term ‘unicorn’ for privately owned startups valued at over $1 billion. Such ventures were a rarity back then. In 2013, there were 39 unicorns (with 3-4 being added to the list every year).
From rarity to abundance
Slowly but surely the breed grew!
10 years on, there are over 1300 unicorns today. Of which, 50 are decacorns (valued > $50bn) and 2 are hectocorns (valued > $100bn).
And like the human race, the unicorns have spread to all corners of the world. While the US still accounts for more than half the number, Asia (especially China and India) has seen a rapid surge in the last decade.
2021, the mad year
While Covid brought the world to a halt in early 2020, the world of Venture Capital was up and running pretty quickly.
And 2021 ended up being a year unlike any before, with a record number of companies getting funded (and at sky-high valuations).
2021 gave birth to more unicorns than 2015 to 2020 combined!
India was no different
While India's overall population took till 2023 to surpass China, in 'unicorn birthing' the country outpaced China by 2021.
In 2022, India had 23 new unicorns to China's 11. And in May, came the crowning moment. Our cricket-obsessed country scored its 100th unicorn in Open Financial Technologies .
Even the Prime Minister talked about it.
"India has scored a century in another area, which is unique," said Mr Modi in his popular national radio programme 'Mann Ki Baat'
0->1 like never before
Over the last decade, the Indian startup ecosystem has slowly moved up the maturity curve. As the number of founders and startups grew, it was only inevitable that the number of unicorns would grow too.
But the pace at which they were coming along was mind boggling.
In 2018, udaan.com was the quickest to get to unicorn status (2 years, 2 months).
By 2022, that record had been broken many times over.
Glance - 1 year, 8 months
CredAvenue - 1 year, 7 months
GlobalBees - 7 months
Mensa Brands - 6 months
But all good things come to an end
As a result of supply chain issues (due to Russia-Ukraine war, geopolitics, Covid lockdowns) and a preceding era of cheap money, inflation spiralled out of control.
As a damage control measure, the US Fed decided to hike interest rates. And the rates just went up, and up, and up.
The recessionary environment, slowdown in online consumption, and higher cost of capital turned the glorious summer of 21 into a funding winter that has now lasted for almost 2 years.
While India doubled its unicorn count in 2021, only 2 made the list in 2023 ( Zepto , InCred Financial Services ).
As startup funding dried up world over, the focus shifted to reducing burn rates and pivoting to more sustainable business models.
Profitability, back in fashion
Less than a third of India's unicorns are profitable.
I was keen to take a closer look at Fintech, given my background and because the sector saw an outsized share of funding (and unicorns) during the boom years. And my sense was that applying a profitability lens would lend a more nuanced view of the underlying segments and companies.
To expand the scope of coverage, I included soonicorns (firms valued between $0.5-1 bn.) alongside the unicorns.
Making money in Fintech
From the outside, Lending may seem as the best and only way to sustainably make money. And there is an element of truth to this.
As a banker, I've learnt first hand that if you can borrow cheap and lend judiciously (i.e., manage risk and add a healthy margin) there is money to be made. More so in a high interest rate environment when margins are wider.
For most large banks, interest income still forms the bulk of their P&L top-lines.
But is Credit the only game for Indian Fintech? The high level stats are:
However, breaking the sector down further reveals some more.
Payments (includes PSPs and providers of BNPL, Cards, PoS solutions):
Lending (includes personal & business loans, gold loans, aggregators):
Financial Infrastructure (includes BaaS, Embedded Finance, Fintech SaaS):
Wealth (includes trading in stocks, futures & options, mutual funds, fixed income, alternate investments):
Insurance (includes brokers, aggregators, direct providers):
Neobanks (includes B2C and B2B providers):
Credit Cards:
The Secret Sauce
While some sectors appear more lucrative than others, the good news is that there are examples of profitable Fintechs across the board.
What most of the successful companies have in common is:
And if you've managed to use your wedge product (be that payments, loans or stock trading) to build a large captive audience, there is no reason why you can't broaden the offering to sell adjacent financial products and services. We've seen examples of this with the bigger players (e.g., PayTM, RazorPay). And it appears to be the playbook for new entrants also.
(Again if you think banks, while the moolah mainly comes from interest income, there is always a focus on fee income especially during a low interest rate environment. Fee income comes from the sale of adjacent financial products and services, rather than lending)
What's in a name?
While unicorns are less rare today, the same can't be said about the sub-set that's profitable.
Perhaps it's time to celebrate the profitable unicorns a bit more!
But what could I call them (I wondered). To find a rarer breed, I asked my 5-yr old who loves unicorns (as do many kids her age).
What do you love more than unicorns?
...
Rainbow unicorns
she said. And hence the title of this article.
I'm not sure if Aileen Lee will approve of the name. But here's hoping that our unicorns (and soonicorns) find the 'pot of gold' at the end of the rainbow.
I hope you enjoyed reading this, please do share your thoughts and insights.
I have relied on online sources for information and used specific criteria to include firms in the profitable + unicorn / soonicorn bucket (e.g., exclusion of Web3 firms, consideration of only full year profitability). In case of any factual inaccuracies however, kindly let me know.
The article has been updated (post the original publication) on receipt of updated stats (e.g. Financial Infra and Insurance companies).
CSAM at Leonardo Helicopters Division
10 个月Great work Vineet!!
Management, Strategy, Innovation, Government, Business Development, Start-ups, Planning
11 个月Good one Vineet!
Streamlining Finance with Comprehensive Tax and Accounting Services| 23 Years of Experience | Director at DAFI Back Office Pvt Ltd
11 个月The shift from unicorn fascination to sustainable business models is intriguing. ?? Exploring the Fintech sector's profitability beyond lending in India is timely, considering its dominance in VC funding and unicorn presence. ??
Test Prep Academician || Mentor || Performance Improvement Coach
11 个月Being in TestPrep industry, I see may Edtechs starting on a brilliant note but not heading anywhere. Though I do not have much idea about how these unicorns exactly attract such huge investments but logic suggests that it is investors' greed that attracts start ups to sell their idea even half baked. Moreover a person with a fantastic idea my not be as good with execution. With insveted money at disposal startups, hire people who don't have same intent and vision as that of founders, overspend on branding, acquire other companies. In this process the original idea takes backseat (at least in EdTechs' case). Also cashburn helps a little because of cut throat competition where customer is spoilt with choices and doesn't think twice in moving on. Eventually most of the startups are left with firefighting. As every phenomenon takes it's own course to setlle down, profitability will also arrive. Let's hope sooner than later! And not at the expense of enormous losses by investors!