The Indian Unicorn Story – Its rise and challenges ahead
Being the land of knowledge with universities like Nalanda, Takshashila etc., we were known for our skills in trade and commerce! Over the last millennium, many more such distinctive identities were added to our reputation. We began to be recognised for our spices, handicrafts, jewellery, spirituality and many such things.
But towards the end of the 20th century, India earned the reputation of being the ‘software hub’ of the world. It started a tech revolution resulting into spawning multiple Indian start-ups, who were involved in innovating cutting edge technologies. Soon, some of these start-ups evolved and became Unicorns. Today, India ranks third, just behind the USA and China when it comes to the number of unicorns.
A recent RBI report states that as of Aug 2021, India has over 100 Unicorns. Of these, 10 were created in 2019, 13 in 2020 and 18 till June 2021! A Credit Suisse report even suggests that while India has over 336 listed entities that are valued at $1 Bn or more and has over 100 unicorns whose total valuation crosses a whopping $240 Bn[d1] !
This makes it one Unicorn for every 3 listed companies valued at $1 Bn or more!
So, what makes India a red-hot Unicorn destination? Let us find out.
India is today one of the youngest countries on this planet. With a maiden age of just 29, the working population in the country is far younger than any other country[d2] in the world. This helps India in many ways:
a) Availability of skilled manpower and acceptability of technology improvements
b) Desire to have a better lifestyle
c) Availability of tech-savvy customer
d) But most of all, the younger age group causes aspirations to rise
These critical factors worked in India’s favour greatly as they led to the creation of an ecosystem that is ideal for the start-up culture to take root and flourish.
Technology has played a crucial role in India’s rise as a start-up destination. As a software and outsourcing hub, the availability of skilled technical resources with the necessary infrastructure are paramount, especially seen in Bengaluru, the software capital of India. Today, Bengaluru is also India’s start-up capital. Not to be left behind, cities like Mumbai and Delhi NCR are fast catching up.[d3]
When demonetisation was announced towards the end of 2016, it came as a blessing in disguise for start-ups, particularly the Fintechs. While Fintechs were already showing a huge potential, demonetisation acted as a catalyst and accelerated their growth. From an insignificant market share, today digital payments comprise about 10% of the total retail payments. Besides Fintech, other categories of start-ups benefitted too. On one hand, initiatives like ‘Make in India’ and ‘Atmanirbhar Bharat’ encouraged local entrepreneurs to take a leap and think big. The focus on cutting down the red tape also added fuel to the fire. India’s ranking on the ease of doing business has improved drastically in the last few years. This augurs well for the start-up ecosystem in the years to come.
Perhaps the most important role in making India a start-up hub was played by the internet and other technologies. Since its launch in 1995, the internet has changed the way businesses operate and customers lead their daily lives. Today, 45% of Indians have access to the internet through various means, which is second only to China.
A detailed study revealed that, rural India had more users ratio wise than urban India (227 Mn vs 205 Mn). Lowest data tariffs, use of budget smartphones and the availability of vernacular content fuelled the rise of a connected India. This opened a lot of avenues for us to innovate with technology and the creation of e-commerce in India.
Flipkart started as a bookseller but is today a dominant e-commerce player. Paytm started as a digital wallet but is today aspiring to be a SuperApp. There are many such examples where start-ups have outgrown their original category of business and are today aspiring to become giants. All this was possible because of the evolving customer behaviour.
Post-1991, when liberalisation was unleashed, consumerism saw a steep rise in India. Eventually, with the rise of the internet, customers supported e-commerce start-ups wholeheartedly. Today, with rising smartphone penetration, m-commerce is driving the next phase of growth. It is the rapidly changing buying behaviour that is working in the favour of tech-driven start-ups converting them into Unicorns.
While these factors make the future look rosy, there are several speed breakers on the Unicorn highway.
If becoming a Unicorn was difficult, staying there is even tougher. Most start-ups or even unicorns are loss making enterprises. Conventional wisdom falls short when you realise that a loss-making company is infact the most valuable company. For instance, recently when the Zomato IPO was underway, it was ranked 78th in terms of market capitalisation in India even when it had not earned a single rupee as profit to date. While the future looks very bright, as of today, the model still looks unsustainable.
The start-ups which eventually become Unicorns are mostly funded by VC money. Given the fact that most of them are loss making ventures, if for whatever reason the VC funding stops, then these start-ups face the question of life and death. The only way to reduce dependence on VC money is by becoming profitable as soon as possible.
Most start-ups and Unicorns are not facing any competition from traditional businesses today. But there are signs that the traditional businesses have started to transform themselves and gear up to compete. For instance, PhonePe and GPay together dominate the volume (86%) and value (80%) in the retail digital payments space today but Reliance Jio and Tata are about to join in with their SuperApps which will also have a digital payment app inbuilt. Therefore, the customer may drop PhonePe and prefer to use these Super Apps due to their seamless experience. Hence the question is, will such Unicorns survive the onslaught of these deep-pocketed players?
The Indian unicorn scenario is today standing at a place where it sees a rainbow on one side and dark clouds on the other. The million-dollar question is which of the two will prevail, but one thing is for sure the customer will always emerge as King/Queen!