A famous saying states: “Ideas get their worth when something is done with them”. During the past decade, start-ups in India have been hitting the headlines periodically for varied reasons. One popular reason: reaching Unicorn status. On average, achieving the $1 billion-plus valuation takes Indian start-ups around seven years.
Joining the initial Unicorn club are some marquee names such as MakeMyTrip, InMobi, Paytm, Ola, BYJU’S, Cars24, Razorpay, Swiggy, Zomato, et al. What separates them from the crowd is the right people, tools, ideas and, most importantly, data to add value to their ideas. Another unique factor is the regime of updating, testing and improving their products and services as often as possible.
This persistence has hugely impressed investors, keeping a regular stream of opportunities and demand flowing. Twenty-first-century start-ups are backed up by innovative technology with a strong belief in the product, vision and people. This belief has generated tremendous value for founders, employees, investors and the economy.
The Indian start-up ecosystem is nothing short of a revolution with $106-billion worth of value-creation by 44 unicorns, in turn creating 1.4 million direct and indirect jobs. It’s not surprising that 86 per cent of Unicorn founders are engineers from IIT. The institution made noteworthy strides in creating an apt atmosphere that promotes entrepreneurship. Moreover, start-ups have helped women entrepreneurs to contribute immensely to the start-up ecosystem. These include Swati Bhargava of CashKaro and Falguni Nair of Nykaa, who are an inspiration for young women.
While the average time taken by several companies to become Unicorns is seven years, this period has been reducing recently as founders with prior founding or start-up experience enter the game. The recent Tie & Zinnov joint release, titled ‘Covid-19 and the Antifragility of Indian Start-up Ecosystem’, estimates India’s Unicorns will reach 100 by 2025.
Unicorns can be spotted in a crowd of other start-ups not just by valuations but as industry disrupters. Maintaining the first-user advantage and exploiting every opportunity that comes their way is key to success.
At the helm of such unicorns is strong executive leadership that makes or breaks the company. Another notable aspect of unicorns is they are more consumer-oriented rather than other enterprise start-ups.
The ecosystem has already gone through cycles of boom, bust, and funding winter in the last 10 years propelled by valuation bubbles, investors’ optimism spurred by FOMO, failure of multiple emerging start-ups, and more. Unicorns are also fuelled by IT, consumerism and innovation. Promising business models supported by avid risk-takers contribute to setting in motion the entrepreneurial wave. Most of these businesses are based in Bengaluru and Delhi is the next-preferred destination while Mumbai comes a distant third.
After the 2015 correction, investors don’t just look at start-up valuations. The focus is slowly shifting to profitability even as many leading start-ups continue to burn significant capital annually. Despite the many popular e-commerce brands founded in India, it is the fin-tech space that has seen the most Unicorns so far. The disruption in the banking and financial sector orchestrated a way for many start-ups to bring deep tech and IP-driven ideas to the financial sector. From e-wallets to insurance and credit, start-ups have redesigned traditional methods of routine transactions.
The factors enabling the rise of unicorns comprise the availability of private equity funds, increasing Internet penetration and digital payments, more robust infrastructure and the rising pool of skilled talent. Meanwhile, the lack of adequate indigenous risk capital has been offset by the easy availability of foreign funds, especially private equity.
Two start-ups, Innovaccer and Digit Insurance, have become the latest entrants to the Unicorn club. Interestingly, despite the Covid-19 pandemic badly disrupting the Indian economy, 11 start-ups still earned Unicorn status in 2020.
India’s changing reforms and policies towards start-ups and various government initiatives have helped the Indian start-ups scale. The inflow of forex especially from leading tech companies such as Facebook, Google, and Microsoft into the Indian start-up ecosystem signals the immense potential of the domestic market.
Considering the focus on creating an Aatmanirbhar Bharat, however, the nation’s policymakers, risk-taking corporates and funding agencies need to foster a conducive climate for ensuring easier availability of domestic capital. Undoubtedly, it’s imperative to maintain a delicate balance between the present socio-economic drivers and the need to stay sufficiently integrated with global markets.
As business models get more complex and interlinked, the regulators have to play a more proactive role in formulating appropriate regulations that encourage innovation and support emerging business models rather than hindering innovation. Besides promoting local funding, the government and corporate entities may need to invest in a big way through leading academic institutions to de-risk start-up investments in the long run.
By providing our “minicorns” (a start-up with $1 million-plus valuation) and “soonicorns” (funded by angel investors or venture capitalists and likely to soon join the unicorn club) the right regulatory ambience and local sources of funding, India can create a truly innovative and resilient economy.
The writer is the Co-Founder, Clix Capital