Unicorns: No Longer A Rarity?

Unicorns: No Longer A Rarity?

  • Reading time:5 mins read

By Tanisha Jain

The last couple of months have been nothing less than historic for the Indian ecosystem with more than 10 startups joining the coveted club of unicorns- privately held startups having their valuation at $1 billion or more. 11 unicorns were born in all of 2020, and that itself was the highest ever for a year in India but in April 2021 alone, a staggering half a dozen of the startups namely Meesho, Cred, PharmEasy, ShareChat, Groww and Gupshup have already come up in just 4 days and the current boom isn’t showing any sign of slowing down. Considering that 11 unicorns were birthed in 2020 as against 7 in 2019, the prediction of 12 unicorns in 2021 is a no-brainer. In comparison, the number is equivalent to what the country logged cumulatively in four years from 2014 till 2017, highlighting that startups are getting to the billion-dollar valuation faster.  Earlier it used to take eight years on an average for an Indian startup to turn into a unicorn but that period is now shrinking. India’s earliest startups like MakeMyTrip and Justdial took around 15 years to become unicorns while it took only 2.5 years for Cred, Ola electric, Glance and Udaan. India is still in the early phase so there is a large potential space for innovation in new and different sectors and not just restricted to technology contrary to Silicon Valley.

To be a unicorn is no cakewalk and each journey has its own unique pathway. Success cannot be credited to a single reason as there are a multitude of factors that are constantly at play. Mostly, all the unicorns have brought a disruptive innovation in the field they belong to and have aimed big. The best ideas spawn from the most obvious daily struggles and hindrances. It is seen that unicorns are mostly the starters in their industry and having the first mover advantage. They change the way people do things and gradually create a necessity for themselves. They also keep innovation up and running to stay ahead of competitors which might later boom. Aiming for the correct sector is an essential part along with the product or service being highly desired by a huge market segment. Most unicorns achieved rapid growth by analyzing their target audiences, identifying a problem, and deploying a rapid solution. They have a radical vision with a revenue based business model and at the same time are careful about the regulatory changes in the environment. Another aspect is that their business model runs on technology. Working on the feedback too goes a long way. While luck also plays a significant part, a proactive entrepreneur combined with a driven team with immense growth possibilities is bound to find success in today’s environment. Although, being a unicorn does not guarantee a successful startup. Kunal Shah, founder of Cred recently commented “Unicorn tag, high valuations are all vanity metrics till the company delivers profits.” The point is, no startup should stop hustling after touching a milestone.

Why the swamp? India has the third-largest startup ecosystem and market in the world. Thus the surge of funding and the breeding of unicorns is not a surprise. This efflux can be attributed to two major reasons, capital investment and digital adoption. 

Capital is chasing growth. It is cheap and interest rates are low, especially in the US. This is the reason why fundraising was at a record high for the fourth quarter of any fiscal between January and March. According to KPMG India, private equity and venture capital funding in the country has doubled in the last five years. Not only this but it is also holding investments for longer periods, implying that the ecosystem is maturing. 

Adding to this, the fact that India is perhaps the last internet market—with over 1 billion users—that is completely open to the internet and technology entrepreneurs globally creates a perfect storm for capital inflow. Global investors such as Japan’s SoftBank Group Corp. and South Africa’s Naspers Ltd. see growing opportunity in the country’s startup scene. This is because the Covid-19 pandemic has expanded the total addressable market for the internet across many categories such as ecommerce, SaaS, education and healthcare. It has accelerated the adoption of online technologies in India, perhaps even more than in other countries and birthed a new generation of ambitious entrepreneurs. The high-priced rounds, and companies getting valued over a billion can be ascribed to the technology investor community going from looking for $1 billion outcomes to $10 billion or maybe $30-$50 billion outcomes within a matter of months. An unprecedented pace of new-company formation and innovation in a variety of sectors has meant a surge in the number of highly-valued companies. According to a January report by Nasscom, the country’s technology industry trade body, more than 1,600 new startups were founded, taking the total in the country to over 12,500 during the pandemic. More than 55 of these are ‘soonicorns’ or potential unicorns. 

Another reason might be that the executives who got experience at leading startups such as Flipkart and Paytm and entrepreneurs who have had successful exits are turning to their second or third startups and since these people have prior startup experience, they can secure funds more efficiently. The government’s Make in India Scheme, too, promised a boom in the native startup scene and the results are in front of us.

Unicorns are called such because they are supposed to be a rarity. But from what we’ve seen in the past few weeks and from what it is predicted to look like in the future with these pouring unicorns, this escalating number is not going to stop any soon. If we keep going at this rate, they will stop justifying their title and the tag of a ‘unicorn’ creating a need for a new benchmark. So the question is, are ‘Decacorns’ the new Unicorns?