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Year 2022: Will The Unicorn Boom Continue?

While 42 unicorns raked in a cumulative entry valuation of US $65.9 billion, India today has a total of 79 unicorns cumulatively valued at US$ 272 billion.

Unicorn has become a buzzword today, with young startups eyeing the tag – across geographies. It was perhaps unimagined then, that the rare Unicorns, which were 43 in 2013, would grow up to be over 900 globally1 in less than a decade. Going by the definition, India had its first Unicorn, InMobi, in 2011, and by the end of 2013, we had added two more, Flipkart and Mu Sigma, to the list. From 2018 to 2020, India began to witness a sharp rise in startups achieving Unicorn status, recording 27 new Unicorns in the three-year period. The last few years have also been a boon for the startup industry, with entrepreneurs blossoming across cities. Today, India is seen as a global startup hub, with startups founded across industries and age groups.

A lot of factors have driven this rise of startup culture in India, one of them being the increased appetite to experiment and build something of your own- something that today’s young generation prefers. The Indian societal mindset has seen a huge shift- from finding that job to ensure survival, to building a stable career (by spending many years in one organization), to jumping onto the entrepreneurial bandwagon. The rise of the middle and upper-middle class has also played an integral role in the rise of startups in India.

The last 2 years have been a testing phase for all kinds of businesses- with the pandemic forcing business leaders to go back to the drawing board and revisit business models. Startups, across a range of industries, took this as an opportunity and emerged as anchors for the recovery of the economy. Startups across industries like Fintech, edutech and health-tech have witnessed exponential growth in the last 2 years- owing to topical products and the right strategy to address the existing gap.

It was in 2021 that India experienced a Unicorn boom, doubling the last three-year record in less than 12 months, with 42 unicorns being added to the list.2 BharatPe also achieved the Unicorn status this year, with a valuation of US $2.85 billion. While 42 unicorns raked in cumulative entry valuation of US $65.9 billion, India today has a total of 79 unicorns cumulatively valued at US$ 272 billion. In the process, it has unseated Britain from the third position in the number of unicorns added in 2021.

2021- The year of unicorns and sustainable businesses

As the golden year for unicorns draws to a close, it is only apparent to reflect back and examine what could have been the key factors that led to this boom in unicorns, and more importantly, whether this trend is likely to continue.

Positive atmosphere. The years 2018 and 2019 saw 8 and 9 Unicorns being added to the list respectively. Even amidst the pandemic disruptions, the year 2020 bettered those numbers with 10 unicorns. Overall, this helped create a positive investor sentiment for Indian start-ups across sectors. The fact that India has a big domestic market makes the country ideal for companies targeting specific services for various customer segments, as there is enough opportunity for everyone to grow. Also, various government initiatives like Startup India, Digital India, Make in India, and Aatmanirbhar Bharat, have further strengthened the startup ecosystem in India.

Startups going public. 2021 has not only been a year of unicorns, but also one that has witnessed a number of new-age businesses going public- namely Zomato, Nykaa and Policybazaar. Some of the IPOs have been really successful as well as provided meaningful exits to investors, thereby driving a culture of startups as well as setting the tone for the next level of growth of young businesses. This will also really enhance the confidence of the investors who have or are looking at investing in startups-thereby, leading to more investments.

Digitalisation. The tremendous focus on digitalization since the launch of Digital India has been instrumental in the Unicorn boom. The majority of the Unicorns are primarily digitally-driven, for instance – Fintech, health-tech, e-commerce, gaming, cryptocurrency, NBFC, SaaS, social media, content news, mobility IT services, and marketplace, etc. As India’s digital infrastructure expanded, organisations could reach out to a wider set of customers and hence, increase their customer base. Products could be easily delivered to people, including those located in smaller towns and cities. This is evident from the fact that of all the Unicorns, around 16 belong to e-commerce (6 became Unicorn in 2021) and direct-to-customer sectors (2 in 2021) and 8 others from online marketplace category (6 in 2021). Furthermore, there are 14 Unicorns from the Fintech sector, and 8 of them have achieved it in 2021. India also has Unicorns from domains such as gaming, health-tech, Ed-tech, cryptocurrency, foodtech, logistics and SaaS, which majorly leverage digital technologies for sustained growth.

Pandemic impact. The year 2020 was impacted by unprecedented uncertainties due to COVID-19 pandemic, which as a consequence had accelerated the adoption of digital technologies and hybrid operational environments. These changes were more suited to Indian start-ups as they inherently are more digital, adaptive, and agile in their working culture and operations. The consumer segments also had to shift to digitally-backed service providers, creating a bigger market of digital consumers. Thus, the pandemic brought digital technologies-driven entrepreneurial enterprises to the centre stage.

Changing Monetary Policy. In the last few years, there has been a significant change in the monetary policies of the country, which has led to the rise and growth of the Fintech sector in India. The UPI has become ubiquitous today with regard to payments. As compared to last calendar year, the UPI has surged 86%, facilitating over Rs. 63 lakh crore worth transactions, as of November end.3 While easily available and affordable mobile technologies, and increased adoption of the internet amplified digital banking and payment systems, the pandemic has enabled the rise of digital financial products, which has encouraged small ticket digital lending for small businesses, promoted the BNPL (buy-now-pay-later) culture, and boosted digital banking in a huge way. Thus, start-ups working in these sectors have thrived under favourable circumstances.

Another Boom in 2022

While it may be debated whether 2022 will see a similar or bigger boom of Unicorns, there are high chances that even upon conservative estimation, the start-ups will witness growing international investment. In addition to the reasons mentioned above, there are newer factors that will come into play. Firstly, Indian economy has shown more resilience and is scripting a speedier recovery from the pandemic in comparison to several other competitive economies. Also, in 2022, the country is expecting the official launch of 5G data connectivity, which will be a mega-boost to the internet and digital technology-driven start-ups.

There are international influences at play as well. The US Government has supported its economy and population as well with a $3 trillion booster dose, which includes direct financial transfers to those impacted by the pandemic. Similar measures have been taken by different developed economies. This has kept demand in developed economies stronger amidst disruptions, which has had resulted in a ripple effect in India.

Also, the reduced trust and the crackdown on Chinese companies globally is expected to benefit the Indian enterprises, as India emerges as a strong alternative for global investments.

Time to build sustainable businesses

I believe that unicorn is not the most important or relevant metric – while there has been a lot of hype around this but it is the business numbers that matter a lot more than just attaining the unicorn status. Startups should not focus their energies on only building their valuation. Instead, they should invest in building sustainable businesses. It is heartening to see startups like Zerodha building real businesses and I hope many more startups get added to this list in the coming years. Interestingly, the valuation of all the unicorns in the country is not even equal to the valuation of the top 2 listed companies in India. Hence, there is enough headroom for growth and I am confident we will see more meaningful businesses from the startup arena in the coming years. The journey for startups has just begun!

Source: Business World

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