AINews & Analysis

Why Is it Raining Tech Unicorns in India?


The great unicorn rush in India that started with Digit Insurance this year, has covered diverse sectors from fintech and edtech to e-shopping and even food delivery. Over the last fortnight, 5-6 start-ups joined the unicorn club, with the country adding 3-4 unicorns a month on average. CarDekho, an online platform for cars and digital payments company and MobiKwik have become the latest startups in India to reach the unicorn club.Experts believe, at this pace, 2021 could end with over 40+ unicorns, the highest in at least a decade.

According to Global Data, India’s tech unicorn ecosystem is the third-largest in the world, behind only the US and China. Currently, the country boasts 48 tech unicorns with a combined valuation of $137bn, according to GlobalData.

So what has triggered the unicorn rush during 2021?

While work-from-home during Covid pushed the growth of digital businesses in India, industry ex­perts believe factors such as a thriving digital payments ecosystem, larger smartphone user base, and digital-first business models — have come together to attract investors. Tech companies are particularly contributing to the unicorn boom in India.

zomatoIn fact, growth in digital payment is reflected in the sector that has contributed the most to the unicorn list. From 2011, when India reported its first unicorn—Inmobi–till the end of 2020, India had six unicorns from the fintech list. This year has already seen seven fintechs joining the unicorn list. Besides fintech, SaaS (software as a service), e-commerce grocery and marketplace players are contributing the most to the unicorn universe. As for investors, Tiger Global and Sequoia Capital continued to rule the ecosystem.

The pandemic accelerated consumer adoption of digital services, helping start-ups and new-age ventures that typically build tech-focused businesses delivering an array of offerings to customers. Many Indians who had traditionally been subscribers of brick-and-mortar businesses moved online and explored a host of services ranging from food delivery and edtech to e-grocery, adding to start-ups’ user base and expediting their business expansion plans. Not surprisingly, new-age investors sitting on adequate capital rushed to back start-ups.

Swati Verma, Associate Project Manager of Thematic Research at GlobalData says, “The Indian unicorn ecosystem has demonstrated resilience during the COVID-19 pandemic.”

In 2020, there were just eight new tech unicorn formations but 2021 has broken all records, with 27 startups achieving unicorn status so far this year. In October alone five startups become unicorns. The country is also home to two decacorns (unicorns valued ≥$10bn) Byju’s and Paytm.

“With a population of 1.3 billion and a smartphone penetration of 45%, India is one of the cheapest countries for mobile Internet worldwide. Digital adoption received a further boost from the impact of the COVID-19 pandemic. The tech startups are the biggest beneficiaries of this trend,” says Verma.

fintechInternet-driven themes such as e-commerce, fintech, and edtech saw strong growth amid the pandemic. Currently, 22 Indian unicorns operate in e-commerce, which is the top theme. These e-commerce unicorns are together worth a total of $52bn. Fintech is the next big theme with nine unicorns, which have an aggregate valuation of $35bn; followed by edtech with five unicorns, which are collectively worth $25bn, says GlobalData.

“After Zomato’s successful initial public offering (IPO) on the Indian stock market, there is a crowded IPO pipeline. Paytm, Byju’s, Paytm, Oyo Rooms, Ola Cabs, and Policybazaar, Lenskart, Delhivery, Nykaa are the next big ones to watch,” says she.

A bubble waiting to burst?

Some investors are however skeptical of the steep valuations as most unicorns continue burning cash and are yet to turn profitable. In an  article published on The Indian Express, Bhaskar Chakravorti, dean of Global Business at the Fletcher School at Tufts University mentions,that the last thing India can afford is a bubble that bursts and for capital, talent and technology to take flight and seek refuge elsewhere (China).

He says, “While the emergence of a dynamic digital ecosystem is indeed exciting, there is reason to worry about the speed of this emergence. When investors rush in to seek refuge because they are fleeing risk elsewhere, even if the refuge looks promising, they can contribute to a self-reinforcing cycle that ends up destroying the refuge.”

“It is exciting to see this huge interest in India’s tech startups, but it would be wise for investors to take a deep breath and ask a few questions. Do the startups and the markets they serve have the capacity to scale up and do they justify sticking with them for a long period? Can these startups, eager to win customers with rock-bottom pricing, ever discover a path to profits, especially with Indian consumers used to bargains? What are the most plausible exit pathways for investors? Has the Indian initial public offerings market really proven itself? Does the experience of just one or two post-IPO tell us enough about the future of India’s IPO potential?…”

The list is long! “India desperately needs patient capital, skilled talent and appropriate technology to solve the country’s numerous fundamental problems laid bare by the pandemic,” says Chakravorti.

Despite these challenges, GlobalData expects the strong unicorn momentum to continue, and the unicorn club to grow by at least 15 tech unicorns in the next year. Cure Fit, Dunzo, Fresh to Home, Mamaearth, Xpressbees, Acko, Lendingkart, Practo, and Uable will achieve unicorn status soon.

So, one can conclude, while the funding boom is here to stay, the funds need to be deployed prudently so that startups can not only grow their businesses, but also create a scale play that is sustainable.

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Sohini Bagchi
Sohini Bagchi is Editor at CXOToday, a published author and a storyteller. She can be reached at [email protected]