Indian Unicorns- the next wave of disruption

Summary

The number of startups reaching unicorn status ( valuation over $1 Bn) in India touched 68 in September 2021- behind only the USA and China. Of these, 30 were added during 2021 alone. An expanding startup ecosystem is creating a burst of innovation, disruption, employment, and economic growth and posing fresh challenges and opportunities for many existing firms.

India- going digital

A remarkable transformation in the digital infrastructure in India has taken place over the last few years.

• Mobile phones: The penetration of smartphones in the country reached 748 mn at the end of 2020. This is projected to touch 1133 mn by 2025 and 1340 mn by 2030 (Source: Statista).
• Internet access: The number of people with internet access matches the number of smartphones in the country- with an overwhelming majority of internet users using their mobiles for online transactions.
• Data Bandwidth: The availability of bandwidth has improved dramatically with the rollout of 4G mobile networks across India -further supplemented with optical fiber laid out at homes and businesses. A typical prepaid mobile plan currently costs about Rs 5 to 6 per GB of data download- amongst the lowest in the world. Unsurprisingly, average monthly data usage in India is the highest in the world- having reached 13.5 GB per person in December 2020 from 11.2 GB a year earlier. By 2025, the average Indian is expected to use about 25GB of data each month.
• Bank Accounts and online transactions: The number of Jan Dhan Yojana bank accounts crossed 425 mn in June 2021- providing bank access to the lowest income groups in India. These accounts are capable of receiving direct benefit transfer (DBT) payments online. Thus, practically all adults in India can be considered to have a bank account. Apart from receiving benefits, mobile phone-linked bank accounts are increasingly being used for online payments. According to a report by ACI Worldwide, India retained the top spot globally in 2020 with 25.5 billion real-time payments transactions, followed by China with 15.7 bn transactions. The share of instant payments (eg IMPS, UPI) is poised to grow dramatically in the future from the current 15.6% of the total to over 50% by 2025.

These developments have created a fertile environment for all types of digital initiatives and startups with innovative solutions.

The rise of Indian Unicorns

Over the last few years, the potential for digital business models has been recognized by all industry participants. This has led to a surge of venture funding fuelling the growth of numerous startups in a variety of sectors. The most promising startups are seeing their valuations rising steeply as a tidal wave of funds chases available opportunities. As of September 2021, a total of 68 Indian startups had achieved valuations above $ 1 Bn and got classified as unicorns.

The current crop of Indian unicorns is mostly driven by digital technologies.  They span a variety of sectors as summarized below, along with some illustrative examples.

1. AdTech & Content: InMobi, Daily Hunt, Glance InMobi
2. Crypto Exchange:   CoinDCX, CoinSwitch
3. E-Commerce B2B:   Udaan, Infra.Market, Moglix
4. ECommerce B2C:     FirstCry, Lenskart, BigBasket, PharmEasy, Nykaa, Meesho, ShopClues, Grofers, Flipkart, Snapdeal, Licious
5. Ed Tech:                    ByJus, Unacademy, Vedantu, Eruditus, UpGrad
6. FinTech:                    BillDesk, Groww, Digit, PolicyBazaar, RazorPay, PhonePay, BharatPe, CRED, PayTm, PineLabs, Digit
7. FoodTech:                 Zomato, Swiggy
8. Gaming:                    Dream Mobile Premier League
9. Logistics Services:   Delhivery, Rivigo, Black Buck
10. Marketplace:            Quickr, Urban Company, Apna.Co, Cars24, Droom, Zetwerk.
11. Mobility:                   Ola Cabs, Ola Electric
12. Property Tech:         Oyo Rooms
13. SAAS:                        Mu Sigma, Postman, Freshworks, Icertis, Druva, Innovaccer, MindTickle, Zenoti, BrowserStack
14. Social Media:           Sharechat, Hike, Gupshup

Numerous startups in sectors like health tech, and financial services are also on the growth path. More unicorns can be expected in the months ahead.

As of September 2021, India ranks third worldwide in the number of unicorns- behind only the USA and China. But well ahead of UK, Germany, S Korea, France, and Israel.

The Road Ahead for Startups

While commendable progress has been made in recent years, there are many sectors that are underrepresented or absent in this race to start and scale up. Some noticeable areas are Hardware (including products and equipment), Biotech, Agritech, Medtech, Industrial automation/IoT, Greentech, Green hydrogen, and Deeptech & AI. Extending the startup ecosystem to such sectors will provide far-reaching benefits to large parts of the Indian economy.

The GOI has launched several schemes under its StartUp India flagship initiative to encourage and provide facilities for startups. As a result, as of September 2021, over 56,000 startups have been recognized by the Department for Promotion of Industry and Internal Trade (DPIIT)- the nodal agency. Further, under the Atal Innovation Mission (AIM), Universities and  Institutes are being funded and incentivized to create incubators and facilitate the setting up and nurturing of startups in different sectors. Over 325 incubators have already been set up – largely under the AIM. Some institutes like IITK have incubators focusing on products/hardware/equipment. Others are actively encouraging startups in Agritech, Aerospace/aviation, and Food processing- depending on their institutional strengths or focus.

These measures are expected to yield results in the years to come. Going by current trends, future unicorns will have many ventures from such sectors.

Implications for Industry players

The massive surge in the number of startups and incubators is creating opportunities and challenges for all participants- the startups themselves, funding agencies, and corporates, as outlined below.

• Startups: They are in a competitive race for survival and growth. They need to develop an innovative product or service and raise adequate funding to reach a viable scale. They may need to find market linkages or partners/collaborators to achieve their potential.
• Funding agencies: The success story of Indian unicorns and the numerous cases where early-stage investors have exited with impressive returns have made the funding community keen on finding and investing in the next potential unicorns. However, they face a challenge in screening innumerable proposals, selecting the most promising ventures to invest in, and hand-holding them till their exit stage.
• Corporates: Most unicorns and successful ventures so far have created new services or formed platforms to aggregate highly fragmented markets.  Few have competed directly with existing industry leaders or posed a threat to them. However, in the coming days, this could change as a fresh group of startups in new sectors bring innovations into existing industries. Leading corporates may have to consider several alternative approaches as summarized below:
  • Acquire: If a new venture fits into the strategic direction and objectives of a firm, an acquisition is a possible way forward to accelerate growth. For instance, Reliance has acquired startups like Urban Ladder, Zivame, and Netmeds to broaden the range of products/verticals on its Jio e-commerce platform. Likewise, Tata Digital has acquired Big Basket, 1mg, and Cure Fit to offer a more comprehensive range to visitors on its TataNeo super-app. Sometimes, larger or better-funded startups acquire other startups to access technology, markets or drive consolidation. E.g. Flipkart, the e-commerce leader, acquired Myntra to strengthen its position in fashion. Flipkart, in turn, was later acquired by Walmart to leapfrog into the e-commerce sector in India.
  • Collaborate/Partner: Many leading corporates find startups growing in adjacent or complementary areas relative to their core activities. Such firms have the option of forming collaborative relationships for mutual benefit- the startup tapping an established customer base or network and the corporate accessing new technologies and attractive customer segments. For instance, several Neo (digital) Banks (e.g. Razorpay X, NiYo, Open) are partnering with commercial banks (like RBL, ICICI Bank, and HDFC Bank) who provide lending and regulatory support. Likewise, PayTM has announced a strategic partnership with HDFC Bank to offer digital lending and payment solutions to consumers and merchants in semi-urban and rural markets. They are also launching a co-branded credit card targetting PayTm’s 330 mn customers and 21 mn merchants.
  • Compete: Some startups develop disruptive technologies that directly challenge the existing leaders in a field e.g.  Ola Electric in electric scooters and Tesla in electric cars. Incumbent firms are forced to adopt the new technology while protecting legacy business profits. Most Indian 2W and PV makers are responding by fast-tracking the launch of their own EVs.
  • Promote/Support: Many leading firms (e.g. Microsoft, Google, Intel) actively track new technologies and startups and selectively become early-stage investors. This gives them a vantage point to monitor the trajectory of potentially disruptive innovations and, when appropriate, increase their holding and even consider acquisitions. Uber India plans to support green mobility startups by providing technical expertise, test sites for experimentation, and funding. Another example is the Marico Innovation Foundation (MIF) set up by Marico Ltd. in 2003. MIF provides a public platform to recognize noteworthy innovations and helps with management support in scaling up. Some examples of recent innovative startups supported by MIF are Rivigo (Logistics services) now a unicorn, Genrobotics ( Robots for manhole cleaning), and Atomberg (Energy-saving appliances).

Towards an Innovative Future

During the first nine months of 2021, about 30 startups have joined the ranks of unicorns in India- almost 3 per month. It is quite likely that the count of unicorns in India will cross 100 in the next one or two years. With over 56,000 startups recognized by DPIIT, over 325 incubators, and increasing availability of funding, the country is on the cusp of an unprecedented upsurge of innovation in an expanding range of sectors. While most startups will undoubtedly fail, numerous success stories will herald a period of change, disruption, growth, and employment generation that will create enormous benefits for the entire economy.