India has the world’s 4th largest Unicorn base

Eight new start-ups joined the coveted unicorn club last year and 2019 seems to be even more promising for India’s start-ups

April 28, 2019

The unicorns pioneered by first generation entrepreneurs with first mover advantages are focussed on education, logistics and lodging industries

In September last year, SoftBank Vision Fund, a large private technology investor led a funding round of US $1 bn in Oyo Rooms

India’s start-ups seem to be exhibiting faster growth potential and breaking into the billion dollar cohort faster

Late stage funding such as Series C,D,E and F particularly grew 250% from US$ 847 million in 2017 to US$ 3 billion

2018 was a milestone year for Indian start-ups in more ways than one.  Indian start-ups did not just attract US$7bn, the Flipkart-Walmart deal witnessed “bumper exits” and an overall “positive investor sentiment” prevailed in the sector. Significantly, eight new start-ups in India joined the coveted unicorn club last year giving India the distinction of having the 4th largest unicorn cohort in the world.

Some prominent start-ups that became unicorns last year were food delivery platform Swiggy, restaurant discovery app Zomato; Policybazaar, a portal that allows you to compare insurance policies; Byjus, the edu-tech company; online marketplace Paytm Mall and gateway hotel chain Oyo Rooms. Most of these unicorns, pioneered by first generation entrepreneurs with first mover advantages are focussed on education, logistics and lodging industries. These innovative tech driven online start-ups addressing unique local needs, have sprung up to cater to an increasingly digitally savvy, young Indian population. The proliferation of smartphones and cheap data plans have also accelerated the growth of these start-ups, which are completely transforming traditional industries.

Oyo Rooms is a classic case. Starting out as a small budget hotel chain, it has now morphed into a US$5 bn venture challenging the legacy hotel chains in the country.  Recognising the dire need for budget hotels, the company started out as an Airbnb inspired online home stay service. Today, it has evolved into a marketplace for budget hotels, aggregating rooms all over the country and monitoring their standards on all fronts. Earning a 25% commission from hotel owners for bookings done on its platform, Oyo Rooms has more than 125,000 rooms on its platform today.

These innovative tech-driven online start-ups addressing unique local needs, have sprung up to cater to an increasingly digitally savvy, young Indian population. The proliferation of smartphones and cheap data plans have accelerated the growth of these start-ups and India will keep the momentum going in creating unicorns next year, thanks to lower inflation, an increase in investment, high consumer confidence and growing wages.

It was in September last year, Soft Bank Vision Fund, a large private technology investor led a funding round of US $1 bn in Oyo Rooms along with existing investors, Lightspeed Venture Investors, Sequoia Capital and Greenoaks Capital. The funding, which will be deployed to expand its operations in China and other international markets, catapulted Oyo, which was valued at just US$800-900 million last year to a unicorn.

India’s start-ups are becoming unicorns faster

USA might have the highest number of unicorns at 130 but India’s start-ups seem to be exhibiting faster growth potential and breaking into the billion dollar cohort faster.

For example, food delivery venture, Swiggy crossed the billion dollar mark within three and a half years, while Udaan, a B2B e-commerce firm got to the milestone in just two. Start-ups are taking just five to seven years to become a unicorn, said a February 2019 KPMG report. India can then easily generate another eight to ten unicorns next year, say experts.

Mohandas Pai, chairman, Arin Capital and former director of Infosys told Business Standard that India will keep the momentum going in creating unicorns next year, thanks to lower inflation, an increase in investment, high consumer confidence and growing wages. He expects around 8-10 companies to enter the elite club in 2019.

It might be too early to predict who exactly could end up becoming a unicorn in 2019. However, investors point out that unicorns will not just be limited to online retail, digital payments and cab hailing segments. The ones which have become unicorns recently or are in the line to, belong to diverse segments such as robotics start-up Grey Orange, health and fitness start-up Curefit; and logistics start-up BlackBuck etc. Big Data, AI and analytics start-ups are also drawing attention.

India-Relevant Tech Start-ups

Byju, one of the first education technology start-up to reach the unicorn milestone in March 2018 is another such example. For Indian students who have to rely heavily on rote learning, Byju’s videos, which break down fractions and explain the laws of motion in a simple fashion are a boon. According to Bloomberg Businessweek report, more than 1.7 million subscribers log into their app by paying $135 a year for access. Take the case of the highly popular on-demand task delivery app Dunzo. Delivering anything from cigarettes to colas, this company is being earmarked by industry experts to hit the unicorn mark in 2019.

Others on the list are on-demand trucking company Rivigo, online grocery firm Grofers, Pine Labs, a payments solutions start-up and logistics firm Delhivery. Online grocery retailer, Big Basket too recently closed a $US 300 million funding led by the Alibaba group that valued it at US$ 950 million bringing it closer to the unicorn post.

Diverse Investors

The spurt in India’s unicorns has largely been spurred by investor interest. Late stage funding such as Series C,D,E and F particularly grew 250% from US$ 847 million in 2017 to US$ 3 billion showing that investors were betting more money on proven business models. Industry experts believe deep-pocketed active investors are keeping the momentum alive in the start-up market.

For example, Japanese telecom and internet giant Softbank, Alibaba, and South African media giant Naspers are active investors in India’s start-ups in terms of high value capital investments. Softbank has already led a $450 million round in Paytm Mall and a $240 million in Gurgaon headquartered PolicyBazaar. While Naspers has been the common investor for last year’s unicorns Swiggy and Byjus.

New venture capital and financial investors such as GIC, Steadview Capital and DST Global etc have also slowly entered the fray placing their bets on India’s start-ups. The government too has simplified and eased norms for angel tax; a Credit Guarantee Fund is being planned for start-ups, and a faster exit under the Bankruptcy code etc., are all initiatives being rolled out to support start-ups. Start-up incubators and accelerators led by India’s premier education institutions such as IITs and state governments and corporate incubators are  also contributing towards their growth. There are more than 200 accelerators in India currently, which is 11 per cent more than the previous year. With this kind of encouragement, it is not surprising that start-ups are crossing their milestones faster.