India Is Home To 81 Unicorns - Here's Why?
Photo: Markus Winkler / Unsplash
Not long before Zomato, and Nyka, among many other startups made a stellar debut in the Indian Stock Exchange Market, startups were mostly known for losing millions of dollars every month.
The successful IPOs of handful of startups with many others in line have earned billions of dollars for investors and venture capitalists, who have invested billions of dollars in the Indian startups. Softbank, the Japanese conglomerate, has invested more than $3 billion this year and is planning to raise that amount to $5 billion to $10 billion in 2022, TechCrunch reported.
Just as Softbank, many other venture capitalists and investors are in a race to grab a share in the growing economy expected to reach $8.4 trillion by 2030. Investors and entrepreneurs see huge potential in India, where the number of internet users is expected to reach 900 million by 2025, according to IAMAI-Kantar ICUBE 2020 report.
India, as of January 2022, is home to 83 unicorns, startups with $1 Bn+ valuation, with combined valuation of $278 billion. 44 of those unicorns were minted in 2021 and have a combined valuation of $93 billion. India witnessed the rise of unicorns across fin-tech, e-commerce, ed-tech, and consumer services among many other business categories.
India hosting 83 unicorns with many more expecting in the coming year is a result of careful planning coupled with favorable factors both domestic and international.
Let’s look at the few factors that propelled the rise of unicorns in India:
Home to millions of internet users
T-Series, an Indian music record company, is the most subscribed YouTube channel with 203 million subscribers. T-Series subscribers will further increase as hundreds of millions of Indians comes online for the firs time. According to IAMAI-Kantar ICUBE 2020 report, the number of internet users in India is expected to reach 900 million by 2025. This opens up the huge possibility for local startups offering e-commerce, fin-tech, and content service providers among diverse range of startups.
The growth of internet users is fueled by the low data cost triggered by the intense competition among telecome companies. Although the price of mobile data has increased from $0.09 per GB in 2020 to $0.68 in 2021, it still has one of the lowest price per GB when compared to global standard rate.
China’s response to corona virus and strict measures to control domestic companies
Given the low labor cost and well established manufacturing ecosystem, China has positioned itself as the powerhouse in the global supply chain. From automakers to mobile manufacturing companies including Apple rely on China for raw materials. And, when China shut down its factories to control the spread of corona virus, companies that relied on China for raw materials too shut down their factories. The shortage of raw material due to China locking down its factories forced companies to diversify their supply chain, making India as one of the best alternatives.
China already has one of the toughest internet rules, which is yet to be cracked by any Western companies with Apple being the exception. The gap created by the absence of Google, Amazon, Meta, Uber and many other fortune companies has been filled by Baidu, Alibaba, WeChat, Didi Chuxing and many other home grown companies, which enjoyed unprecedented growth with few regulatory oversights. That changed when Beijing punished Alibaba with a record breaking $2.8 billion fine for exploiting its market size. To make the matter even worse for Jack Ma, co-founder and former executive chairperson of Alibaba, China’s State Administration forced Alipay, also controlled by Jack Ma, to pulled the $37 billion IPO of Alipay until further notice.
The stories of Alibaba, Alipay and many other companies who suffered huge blow from China’s strict compliance regulatory requirements sounded alarms among investors. The risk of losing fortunes among investors made them look for countries where foreign investments are safe from any government initiated intervention.
Revamped FDI policy to attract global investors
For the fiscal year 2020-2021, India saw the total FDI inflow of $81.72 billion, an increment of 10% from the last financial year of 2019-2020. The increment in the FDI inflow is the result of series of steps, initiated by the Indian government, to make the FDI policy favorable for foreign investors.
Indian government, for instance, has introduced automatic route where foreign investors or Indian company doesn’t require prior approval from the Government of India for investment in the designated sectors such as insurance (up to 49%), ports and shipping and medical devices (up to 100%). Investors can repatriate dividend and interest without any restrictions.
The response from global companies to the newly introduced FDI policy is overwhelming. Multinational companies including Google, Meta and Amazon have invested billions of dollars in the Indian companies. Meta, which is previously known as Facebook, has invested $5.7 billion in 2020 in Reliance Jio owned by India’s richest man, Mukesh Ambani. Amazon is in heated battle with Flipkart and has invested $6.5 billion to increase its market share. Google has also announced plans to invest more than $10 billion in the next five to seven years.
Foreign investors and venture capitalists have poured billions of dollars in the Indian startups. Byjus, an ed-tech startup, has raised more than $3 billion at a post money valuation of $21 billion, making it the most valued private startup of India.
Startup focussed Government’s initiation
As India embarks on its journey to become a $8.5 trillion economy, Indian Prime Minister, Mr. Narendra Modi, has long emphasized the importance of startups in transforming the economy. In the last 5 years, Indian government has launched multiple initiatives to promote the growth of startups.
Launched in 2016, Startup India is one of the ambitious project of the Indian government to foster startup ecosystem in the country. For this project, Indian government had announced a fund of INR 10,000 crore to provide financial support to startups who failed to secure loans due to collateral issues and/or who doesn’t qualify for loans. Startup India project has also introduced mobile app, which can be used to initiate and track the startup registration process, and apply for the various government schemes.
Establishment of incubation centers across national institutions, tax exemption policy, and annual startup fest in both national and international level are some of the other initiatives under Startup India program to bolster the growth of the startups in the country.
India has now as many as 60,000 startups operating in diverse fields including e-commerce, fintech, ed-tech and agriculture. India’s rank in the Global Innovation Index 2021, which is track by World Intellectual Property Organization, has jumped to 46 as is evident in the increment of number of registered patents and trademarks. In 2021, Indian government granted 28,000 new patents and approved 2.5 lakh new trademarks, business today reported.
We can say that the wave of unicorns in India has just started and with many eyeing for the public market in the coming years many investors are expected to reap hundreds of millions of dollars in benefits.