India has become a nation of unicorns in 2021. A unicorn is no longer a mythical beast in the modern world, it has become, in digital parlance, a company valued at over one billion dollars. A phenomenal 42 companies have emerged as unicorns over the past year as compared to only 37 from 2011 to 2020. The result is that India now has 79 unicorns. It has overtaken the U.K. to become the third highest in the global list of such ventures, though remaining well behind the U.S. and China.
Amidst the rapid pace of start-ups that touched the billion dollar valuation level, one reached this exalted status only in six months. Mensa Brands became the quickest to join the high value club. Most new unicorns emerging this year were in the fintech space but ecommerce, edtech and software solutions also captured the interest of investors. As many as nine out of the total 79 unicorns opted for public issues and managed to raise 6.1 billion dollars out of the total 8.8 billion dollars raised in the public market during the year. These included the headline-grabbing Nykaa and Paytm IPOs (initial public offerings) which were both noticed for different reasons. Nykaa was high profile owing to its woman founder, Falguni Nayar but Paytm was noticed for less favourable factors. Its market price fell immediately after the issue was launched, leading to concerns over the lack of care over pricing issues.
Among well known brands that have become unicorns this year are Big Basket, Cred, Grofers, Pharmeasy, Licious, Mobikwik, Urban Company and BharatPe. Even in 2020, despite the strains of the pandemic, eleven start ups managed to reach unicorn status. The prominent names over this period included Ola, Zomato, Glance, Cars24 and Zerodha. But it was in 2021 that crypto currencies came into the limelight. Crypto currency companies raised huge funds leading to CoinDCX and CoinSwitch Kuber becoming the first unicorns in this segment. This is despite the fact the government policy seems to be in favour of either banning or imposing tight regulations on private cryptocurrencies.
Several factors have contributed to this perfect storm of unicorns in 2021. Firstly, and probably most importantly, the pandemic brought about a focus on the internet and digital platforms. Whether it was payments through fintech companies like Paytm and Mobikwik or ecommerce becoming the most critical supply chain with Big Basket and Grofers gaining ground, the digital arena increasingly became critical for consumers. Work from home meant that online activities became the only way to interact with the outside world.
Secondly, investors began to realize the potential of the digital ecosystem in this country. Internet penetration here is still low compared to the number of potential users. Even among those using digital platforms, only a relatively small percentage end up shopping online. For instance, it has been estimated there are about 44 crore Whatsapp users but only 15 crore are online shoppers. Thus there is vast potential and investors are looking forward to higher revenues in the long run by tapping this market. It would thus be unfair to characterize investments into these start up ventures as being carried out merely on the basis of media hype. Venture capital funds are making investments based on long term projections, envisaging the prospective returns over the next five to ten years.
A third factor that has led to heightened interest in startups over the past year has been the regulatory tightening of internet companies in China. This has prompted venture capitalists to shift their focus to India. In fact, some like Softbank have indicated their interest in sustained long term investments in this country. In addition, the startup ecosystem has gained from the general trend of global liquidity which has pushed funding of new ventures.
And finally, it has to be accepted that many of these unicorns address certain problems in the digital ecosystem that need resolution. For instance, some start ups sought to resolve lacunae in the back end of ecommerce or healthcare sectors. This identification of issues that need a solution is one of the major reasons for valuations of these companies rising steeply.
With 79 unicorns currently in the country, it looks as if the sky is the limit for more such enterprises. As of now, Byju’s, the edtech giant, is the largest with a valuation of 21 billion dollars. This is followed by the adtech firm, InMobi with a valuation of 12 billion dollars. Software as a service (SaaS) companies are also doing well with a valuation of 7.3 billion dollars for Freshworks. As for a nurturing environment, it appears to be present mainly in Bengaluru which has once again justified its moniker as the Silicon Valley of India with the largest number of unicorns based in this city.
The big question is, will the proliferation of unicorns continue in 2022. Given the impact of the pandemic and the focus on online activities, concerns are being voiced over whether a return to normalcy may lead to a decline in investor interest in start-up ventures. It looks unlikely, however, that the spurt of investment will taper off immediately. The reason is that most start up ventures so far have a long term development outlook. More such companies are evidently in the pipeline.
Besides, the number of unicorns created in other countries like the U.S. and China are much higher, indicating that funding is available for the right type of enterprises. As many as 254 unicorns were created in the U.S. during 2021 while there were 74 in China. In other words, the number of unicorns is directly proportional to the innovation and entrepreneurial drive in any country. Clearly, the potential here is still enormous and 2022 is likely to see the world of unicorns expanding even further in this country.