Indian startups quicken their pace to become unicorns

A maiden report by China-based Hurun Research Institute that has listed unicorn companies from around the world, has put India on the third spot after China and the US, for producing 21 startups valued at a billion dollars or more.

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According to the report, while China has 206 unicorn companies, the US has 203 such companies, together accounting for over 80% of 494 unicorns globally. India is way too far behind with just 21 unicorns, but the pace at which startups are entering the prestigious club is what sets it apart from other markets.

It is to be noted that this report lists only those companies that got over billion-dollar valuation till June-end this year. India added four more unicorns between the month of July and September.

It took six years for 10 Indian tech companies to be valued at over US$1 billion, but in just one year – 2018 – investors valued eight startups at a billion dollars or more. This year, the performance has gotten even better as in just 10 months, eight new companies got into the unicorn club. To be clear, three companies – Flipkart, Snapdeal, and Shopclues – that became unicorn companies between 2011 and 2017 are no longer a part of the elite group.

“The Indian startup ecosystem really took shape in the last decade, which saw some quality founders,” said Hari Krishnan, a fund manager at Astrarc Ventures, a Mumbai-based early-stage venture capital fund.

Krishnan told KrAsia these founders have seen the first wave of startups in the country and took early-stage risks, mitigated them successfully, and executed their ideas really well in the urban markets. “And some of those startups, which have now become large, are looking at the second set of markets – semi-urban areas and towns.”

According to him, better access to infrastructure including smartphone penetration, internet, and cheaper data plans beyond metros has made a larger part of the country a target market, which was not the case earlier. He believes behemoths such as Paytm, Flipkart, and Ola are able to go mainstream in tier two, tier three, and tier four markets because of the infrastructural expansion.

“The third leg is the capital. Large exits have given confidence to the large funds, which are now focusing on India. So along with mature startups, mature founders, better infrastructure, and a larger potential market, the availability of global money is also catapulting these startups [into unicorns],” Krishnan said.

In 2018, American retail giant Walmart bought Flipkart for US$16 million, giving the latter’s investors a hallelujah exit. This lifted investors’ sentiments, and Indian startups received a whopping US$10.9 billion in investment in the first nine months of 2019, according to data by research firm Tracxn.

“All these factors have contributed to the large funding rounds that are happening in slightly late-stage companies,” Krishnan added.

As per the data from research firm Venture Intelligence, investments in growth-stage startups, typically series B and series C, crossed the billion-dollar mark in the September quarter, hitting a four-quarter high. Overall, growth-stage investments raised a total of US$2.3 billion between the months of January and September in 2019.

However, the bigger cheques written in growth-stage startups have not only created unicorns, but has also prepared more than two dozen “soonicorns,” soon-to-be unicorns, to wear the much-coveted hat that is worth a billion dollars, so to speak. The list includes startups such as Pine Labs, Lending Kart, DailyHunt, CureFit, and ShareChat.

“Largely because of the abundant availability of capital and big enough Indian market, we are seeing a lot of startups growing at a fast pace,” said Sajith Pai, director at Blume Ventures.