In mythology, unicorns are pure steeds with a single protruding horn which are exceedingly elusive and rare. They served as a metaphor for something unique, and legends about them were passed down through generations. Exactly why the name appealed to venture capitalist Aileen Lee in the fall of 2013 when she was looking for a word to describe an unusual phenomenon — venture-backed private or public US companies in the technology niche valued at over $1 billion. Her article published in TechCrunch, ‘Welcome to the Unicorn Club: Learning From Billion Dollar StartUps’, exploded in popularity until it entered the Silicon Valley lexicon.
While Lee — the founder of Cowboy Ventures — counted only 39 such American unicorns, today the definition has been narrowed down to look at only privately held companies. Yet their number has doubled to 80 in the US alone. CB Insights — which tracks unicorns real-time — counts 131 of them globally, valued in all at $488 billion. The Wall Street Journal, which also tracks them jointly with Dow Jones Venture Source, counts 115 global unicorns, valued at $461.2 billion.
At first blush, 131 unicorns may make them too commonplace, so unlike the elusive mythical beasts. No doubt, there’s plenty of easy money sloshing around. KPMG and CB Insights found more than 100 ‘mega deals’ ($100 million-plus rounds) in the first six months of 2015. In all, VCs have pumped in $32 billion in Q2, and investments till June are up 50 per cent from last year. But take away the 80 American unicorns which are a testament to the unsurmountable lead taken by Bay Area startups, and you just have 51 of them from around the world. And eight of them are from India, which takes third place honours in the list after China with 19.
Despite the skyrocketing valuations, being a $1-bn dollar company is not so easy. According to CB Insights, only about one per cent of technology startups can expect the unicorn tag. “There are so many people who try so hard and have such big dreams, and it doesn’t happen for them. Or it may happen, and then it goes away. It is not just hard to get there, but it is hard to stay there,” Aileen Lee recently told The New York Times.
Infosys co-founder and former CEO Kris Gopalakrishnan is not surprised by the rise in the number of Indian unicorns. “I am happy to see businesses scaling up in India and getting these valuations. Given the size of the Indian market, this is to be expected. As more and more consumers start buying things online, this market will continue to expand,” he told Deccan Herald.
The Indian roll call
And which are the Indian unicorns? Both CB Insights and WSJ commonly list seven — Flipkart, Snapdeal, Ola, One97 Communications, InMobi, Quikr, and Zomato. CB Insights adds one more in Mu Sigma. Their valuations too vary from $26.4 billion for all eight by CB Insights to a more generous $28.9 billion for seven of them by WSJ. To avoid heartburn, we have valued them at a combined $30.5 billion, by totalling the highest individual valuations across both lists. How did the Indian unicorns get there? We found many references to “reshaping the market” and “solving real problems” in the responses we received. CB Insights CEO Anand Sanwal said, “While the funding environment is certainly frothy, we are seeing startups rapidly re-shape markets ranging from transportation to hospitality to healthcare.”
“India is home to enormous problems. Finding solutions for them require business acumen. How this business model can be tied up with technology will define the success of business across India,” said Ola Director (Marketing Communications) Anand Subramanian.
“To expand business, Ola went deeper into existing markets and tackled more use cases in the transport segment. We have brought in autorickshaws and taxis on the platform by expanding throughout the country. This has really made us to register exponential growth of 10x in the last fiscal,” he said.
SnapDeal’s Rohit Bansal and Kunal Bahl’s November 2011 visit to China was an eyeopener and they realised the need to serve a bigger purpose. “The SME sector in India is highly fragmented and there is no channel that enabled a small business to grow without substantial investments. We decided that our future lies in building India’s largest online marketplace,” a Snapdeal spokesperson said.
In an emailed reply, InMobi CEO Naveen Tewari outlined the strategy which allowed it to vault into the unicorn club. “We built a stable base in familiar markets like India, South-east Asia, and other emerging markets and then went into developed markets. InMobi also gave primacy to investing in great talent locally across global locations.”
Role of founders
Unicorns around the globe are founded by leaders who solve problems which befuddle others and build stable platforms. Snapdeal pointed out that given the fragmented nature of the offline retail market in India, its founders realised early on that for the same structural reasons Alibaba succeeded in China, Snapdeal would grow much faster if it adopted a pure marketplace model for businesses to sell to consumers. “As seen in the last couple of years, we were indeed right in our approach with most eCommerce companies now pivoting to the marketplace model,” said the spokesperson.
Unicorns rely on technology to make a tectonic impact on their user base. Snapdeal admits that at the centre of its ecosystem is the user account where consumers have stored their information. “Layering this are the marketplaces, each serving a different consumer need — Snapdeal (products), FreeCharge (utilities), Exclusively (luxury), and RupeePower (financial services). We will have others in the future which will cater to many other consumer needs,” said the spokesperson.
DeepDive Equity Research head Rod Bourgeois said unicorns can help fuel the adoption of cloud technologies as cloud allows mid-sized firms to scale quickly. “The trend toward venture-backed growth companies is prone to favour businesses, such as NetSuite, with a track record of selling to unicorn-sized companies,” he said.
The way forward
What will be the future trajectory of Indian unicorns? According to Kris, India will see new startups emerge in eCommerce niches. “We will see hyper-local businesses not just in metropolises, but also in tier-2 and tier-3 towns,” he said. Snapdeal founders are confident that collaborative consumption and payments are the next likely pieces of the digital commerce puzzle. InMobi’s Tewari says mobile usage is only going to increase. “MCommerce will boom around the globe. Advertising is going to be a $600-billion industry by 2018.”
Michael Dempsey, head of Research and Data Analysis at CB Insights, said that he can’t comment on the number of unicorns likely to be added in the second half on a country basis. “Indian unicorns are interesting because of some of the macroeconomic factors in the country such as the increasing middle class and the relatively low internet penetration. This gives the addressable markets for these startups a lot of room to grow, and that probably interests a lot of investors.” Looks like the Indian unicorn story has only just started.