This time final yr, Indian entrepreneurs had been in panic mode.
The federal government had locked down the nation’s whole inhabitants in a dramatic step to combat the coronavirus pandemic. Firm founders feared the restrictions would depart them in a extreme funding crunch that would damage their potential to increase, pay salaries and even keep afloat.
The temper a yr later may be very completely different, regardless of a brutal surge in coronavirus instances that’s threatening the financial restoration. India’s startup neighborhood has discovered itself in an unprecedented funding bonanza.
Within the first 4 months of 2021, 11 firms have attained unicorn standing, that means they’ve reached a valuation of not less than $1 billion, in keeping with knowledge platform Tracxn. 5 startups hit that milestone in April alone. By comparability, there have been 13 in all of 2020, and 10 in 2019. The ranks of India’s tremendous rich tech leaders are swelling quickly because of this.
The growth is largely because of powerhouse funding by companies reminiscent of Tiger World and SoftBank, that are pumping cash into India’s quick rising web companies — a prize many buyers merely discover too large to disregard.
Not solely are extra firms amassing this sort of cash than ever, however they’re additionally doing so at a record-breaking clip. And a few of India’s most profitable startups — together with Flipkart and Zomato — are reportedly exploring potential listings this yr. Zomato declined to remark and Flipkart didn’t reply.
However the seemingly limitless fundraising cycles might ultimately produce diminishing returns, fear many trade consultants, who say India’s startup ecosystem wants to begin displaying constant earnings and wholesome exits for buyers, and shortly. Some observers really feel that the massive funding being doled out makes being a “unicorn” a less-than-mythical achievement.
“It’s nice that Indian startups are going via this funding growth. However they might want to discover sustainable enterprise fashions, which make some huge cash, so as to survive,” mentioned Radhika Gupta, CEO of Edelweiss Asset Administration Restricted. “Even a Google or an Amazon can not survive on buyer numbers alone.”
First, the excellent news
The funding craze is as a result of rise of India’s digital economic system. There are greater than 700 million web customers within the nation and roughly half a billion but to come back on-line, creating monumental potential within the market.
The pandemic, in the meantime, has inspired individuals outdoors of main cities to spend cash on-line, rushing up digitization of companies and opening up extra alternatives for know-how entrepreneurs.
Monetary know-how companies have been the most important winners. By the top of 2020, India had 44 unicorns, and most had been within the fintech sector, in keeping with a report by Orios Enterprise Companions. Retail and software program as a service firms are subsequent in line.
The enterprise capital agency additionally discovered that the time it takes for a tech startup to succeed in a $1 billion valuation has shrunk dramatically, from practically 15 years in 2005 to 2.four years in 2016 and 2017.
This yr alone, app developer Mohalla Tech, funding startup Groww, and messaging platform Gupshup have all turn into unicorns — largely due to large investments from Tiger World, in keeping with Tracxn knowledge. The New York-based funding firm, which additionally made large early bets on Flipkart — the e-commerce large acquired by Walmart in 2018 — has been extra bullish than different companies on the nation.
Tiger World didn’t reply to a request from CNN Enterprise for remark, however the agency has up to now praised the companies it has invested in as effectively positioned in India’s rising web market.
Danger of bloat
Some consultants, although, have began questioning how a lot cash large funding companies are pouring into the sector.
“They over-capitalize the corporate by giving 1.5 instances or 2 instances the quantity wanted,” mentioned Amit Ranjan, co-founder of presentation-sharing service SlideShare. He’s now working with the Indian authorities on a digital locker challenge known as DigiLocker.
“There isn’t a justification for this besides to bludgeon the competitors,” Ranjan informed CNN Enterprise.
However Rehan Yar Khan, managing accomplice at Orios Enterprise Companions, doesn’t see the inflow of cash as a “large fear.” In any case, firms nonetheless want huge quantities of capital to seize the potential of India’s huge market.
He cited PharmEasy, a web based pharmacy agency, for example. Khan was an early investor within the agency, which turned a unicorn earlier this yr.
“E-pharmacies have coated solely 3% of India’s market,” Khan mentioned. “… So naturally they want extra money to develop.”
However there are different complications to contemplate, too. What occurs if a unicorn turns into over-funded and fizzles earlier than it has an exit plan?
Flipkart is the one Indian tech unicorn to have been acquired at a valuation of greater than $1 billion. (E-commerce agency Shopclues, which was valued at $1 billion in 2016, was acquired three years later by a Singapore-based firm. However by then, Shopclues’ worth had collapsed to between $50 million and $80 million.)
Solely a handful of Indian tech companies have held listings over the the final twenty years. And no tech startup value greater than $1 billion has gone public.
“By inflating valuations within the non-public market, you might be suspending your potential to enter the general public market,” mentioned Karthik Reddy, co-founder of enterprise capital agency Blume Ventures. He believes that Indian companies have to consider preliminary public choices sooner relatively than later so as to construct a sustainable startup ecosystem.
“We don’t have massive tech acquirers, so you may’t watch for a Walmart to come back and purchase your greatest asset each time,” he added.
May this be the yr?
There are murmurs in Indian tech circles about enormous upcoming exits. Reddy is optimistic that 2021 could also be remembered not only for its funding growth, but in addition for bringing a few cultural shift within the trade.
Indian conglomerate Tata Sons is reportedly seeking to purchase on-line grocer BigBasket for greater than $1 billion, the Mint newspaper reported final month. Requested for remark, Tata Sons referred CNN Enterprise to BigBasket, which didn’t reply.
Different Indian media retailers have reported over the previous few months that older unicorns might think about itemizing quickly, too. And the Financial Instances reported final week that a number of startups are scrambling to recruit senior executives with some IPO expertise.
Ought to both Flipkart or meals tech firm Zomato observe via with an IPO, such listings might be game-changers, in keeping with Reddy.
“India must unleash its tech companies on the general public market,” he mentioned. “Proper now Indian residents have hardly any publicity to the unicorn growth.”