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THE UNICORN RACE: INDIA CATCHES UP WITH AMERICA AND CHINA

Updated: Jan 16, 2021



The term unicorn startup was first coined in 2013 by Aileen Lee, founder of Cowboy Ventures. Lee used it to refer to privately owned startups with a valuation of over $1 billion. At that time there were 39 startups in America, 1 in China, and India had none.

Now, America has 137, China has 120 and India is home to 47 unicorn startups.


The unicorn industry is currently in around 29 countries around the world. The dominance of America and China is such, that they have more than four times the number of unicorns in India. It is also important to note that a massive number of unicorns founded by Indians are based in America, giving the credit of the same to them, whilst only 47 are based in India.


One of the main reasons for this disbalance is the nature of markets in all three countries. America and China have people and companies who are readily flexible and comfortable with unicorns. Whereas, India as a market for unicorns is still getting familiarised with the idea.

Softbank, (based in China) takes the lead in investing in Indian unicorns, as well as unicorns around the world, making it the leading investor in unicorns around the world.

Similarly, PayPal, (based in America) has founded 7 unicorn companies and is investing in unicorns around the world.


The Indian startup community faced a lot of problems while breaking through the glass barriers such as limited funding, a dearth of talent, inadequate infrastructure, and a plethora of cultural and social challenges. Although, the increase in the number of Indian unicorns is a sign that the Indian economy is reaching a turning point and its entrepreneurial culture is maturing. From InMobi being India's first unicorn to Paytm being India’s largest unicorn, things have come a long way since then.


According to Indian Tech Start-up Ecosystem: Approaching Escape Velocity — a 2018 report by the Indian tech industry association Nasscom — India is the third-largest startup ecosystem in the world. Being the third largest ecosystem for start-ups, India is witnessing a new trend of unicorns emerging from existing unicorns.




For example, Ola Electric, Paytm Mall, and PhonePe have already differentiated themselves from their parents. 2018 saw a whole new breed of emergence of unicorn startups. Now the average time taken to attain a billion-dollar valuation has come down to between 5-7 years lower than 7-8 years required to attain unicorn in the US. Indian tech start-up ecosystem is the leading tech in the 2020s.

3 Indian start-ups have made it to the 50 global future unicorn list namely: Cred, Moglix, and Vedantu. 3 of China's unicorns have made it to the list of most valuable unicorns. 2 American unicorns also made their way to the list. Amongst them is India's 1 unicorn, Paytm.

Around 71% of 2019's unicorns are business to business(B2B) focused, while 57% are from emerging and Nascent sectors such as gaming, automotive, and supply chain/logistics. The next wave of growth will be at the junction of convergence of technologies, where different sectors will embrace digital to re-define their operations.

The COVID-19 pandemic saw a subsequent recession which caused major crises for businesses all over the world yet 11 Indian startups joined the Unicorn status in 2020. The question arises here that how were they able to achieve such status even during such a recession?


According to experts, these startups worked towards the difficulty faced by the people amidst lockdown. For example, due to the lockdown and strict COVID-19 restrictions, all schools, colleges, and coaching institutes were shut indefinitely. This led to the increase in popularity of online learning thus increasing the significance of Unacademy exponentially in the market. From school students who sought online test series for upcoming entrance exams to people working from home who used it to upskill themselves, Unacademy had something for everybody and the lockdown helped it capitalize on this opportunity.


"The slowdown in China's startup ecosystem is likely to increase the funding momentum of investors from that country in India as they seek new opportunities," said V Balakrishnan, Chairman of Exfinity Ventures.

With countries competing to be on the top, there is a side race going on simultaneously - The race of capital venture. The idea of unicorn startups is quite controversial as well. Some professionals believe that such companies are just a result of technological progress and innovation; others believe that the increasing number of unicorns is a sign of a bubble in the industry. A bubble in the industry is characterized by the rapid escalation of market value, particularly in the price of assets. It occurs when unicorn startup companies are overvalued by venture capitalists or investors.


One major drawback along with the India-China clash, is that majority of the Indian unicorns are funded by Chinese investors. Even after changing the FDI policy by the Indian government, the dragon still holds sway over the start-up ecosystem, with half of the Indian unicorns backed by Chinese investors. According to data compiled by Tracxn, 15 out of 30 unicorns in India are backed by Chinese investors.

These include Zomato with 750 million by Ant Financial and BigBasket.



BY-

Vidhi and Vriti

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