The charge of India’s unicorn brigade

Six years ago, when venture capitalist Aileen Lee coined the term “unicorn”—to define the extreme rarity of startups valued north of $1 billion—there were just 39 in the US and only three Indian unicorns. Today, the US and China are home to over 200 each, while India has roughly 30! 

Since mobile advertising company InMobi became the country’s first unicorn in 2011, there had been only the odd spotting. But in the past two years, Indian unicorns have smashed through the barn door—10 in 2018, while the class of 2019 has:

  1. Eyewear retailer Lenskart
  2. E-grocer BigBasket
  3. Fantasy gaming platform Dream11
  4. Cab aggregator Ola’s EV company Mission: Electric
  5. Logistics startup Rivigo
  6. Logistics startup Delhivery
  7. Cloud data protection firm Druva
  8. Enterprise contract management firm Icertis
  9. Healthcare analytics company CitiusTech


The unicorn count varies, with exclusions including companies not based in India, or if the $1 billion tag came in an IPO, Or an acquisition, like CitiusTech. Baring Private Equity Asia bought CitiusTech in July 2019 in a deal that valued the healthcare analytics company at a little over $1 billion

Indian unicorns, such as now-household names Flipkart and Ola, benefited from the spread of internet-connected smartphones and cheap cloud computing. They built empires by bringing existing businesses like shopping, taxis, food delivery, hotels, etc., online. Of course, there was also a stream of investors ready, willing, and able to fund startup dreams.

It takes two to tango. So, too, the disruptors of the decade: Ola and Uber in ride-hailing, Flipkart and Amazon in e-commerce, Swiggy and Zomato in food tech, OYO and SoftBank in hotels… oh wait! 

Amidst all this brouhaha now, it is easy to forget that things weren’t always like this. As we recapped earlier this year:

“Just ten years back, there were a handful of startups and a far smaller bunch of investors. A $100,000 funding round was considered respectable and VC decisions took months to move from interest to mandate.

So how and why did things change?

If one were to look back and connect the dots, it wouldn’t be farfetched to conclude that if there was one event that catalysed this revolution, it would be when Lee Fixel, then head of Tiger Global, invested $10 million into a then largely unknown online bookseller called Flipkart.”

That was in mid-2010. Tiger Global made nearly 50 early-stage bets in the early part of the decade and irrevocably changed the three Vs of venture investing in India.

  • Value: A $10 million round was unheard of at that time
  • Volume: One fund invested in 15 companies at most
  • Velocity: Tiger invested within hours, rather than months, of a meeting 

Fixel invested massive sums in e-commerce startups like Ola, classified ads platform Quikr, e-tailers like Myntra and ShopClues. Ola and Quikr became unicorns in 2014, the same year Flipkart bought fashion e-commerce portal Myntra.

But potential Indian unicorns really blossomed after two seminal moments in 2016. The first was in September when Reliance Industries launched Jio and took dirt-cheap internet data into every nook and cranny of India. Then, in November, the Indian government replaced 86% of currency notes with a new set—a “demonetisation” that sparked the digital payments wave.

Suddenly, one could order and pay for clothes, food, taxis, hotels, insurance policies, and medicine using just their smartphones. All startups needed to keep seducing customers with discounts and cashbacks was a benevolent investor.

No backer was more so than SoftBank.

The Masayoshi Son-led firm led mammoth funding rounds in a host of e-commerce startups in the latter half of the decade. In fact, SoftBank-led rounds have created six Indian unicorns in the past two years. Lenskart, Delhivery and Ola’s Mission: Electric were the beneficiaries in 2019.

In 2018, they were insurance aggregator PolicyBazaar; Paytm Mall, the e-commerce arm of payments company Paytm* (also a unicorn); and OYO, which claims to be the world’s third-largest hotel chain.

SoftBank has backed at least one major sector disruptor and, in the process, created not many unicorns. Why? As we summed up in 2017: 

“But the magnitude of the ($100 billion Vision) Fund is a double-edged sword. On the one hand, SoftBank can enter pretty much any deal it chooses to but on the other, it can’t afford to miss having a stake in any of the hot sectors/startups that could emerge as the totemic companies of tomorrow, essentially ending up with an index fund of the most important startups in the world.” 

And it has. Nearly all B2C (business-to-consumer) unicorns are backed by SoftBank. But it has been conspicuous by its near-absence in one rising space. B2B, or business-to-business.

Old: B2C, Gold: B2B

Seven of the nine Indian unicorns between 2010 and 2017 were B2C companies, while InMobi and data analytics company Mu Sigma were the B2B entrants.

And that was that. Until 2018, which turned out to be a breakthrough year for B2B companies. There were four B2B unicorns that year and another five in 2019. They include India-focused ones like e-commerce company Udaan, fintech companies BillDesk and Pine Labs, as well as Delhivery and Rivigo.

But it is the globally-focused SaaS (software as a service) companies that have really blossomed—Freshworks*, Druva, Icertis and CitiusTech.

But, India’s SaaS success story almost never happened.

While SaaS companies mushroomed globally at the start of the decade, break-out Indian ones were as rare as, well, unicorns. But the hunt for funds meant investors measured these companies using cost metrics over revenue ones. That hit valuations and curbed the pace of startup creation, we wrote in 2016, adding:

Now, while all of this may come across as bad news for the SaaS sector in general, it is music to the ears of SaaS entrepreneurs in India. Because when cost becomes a primary consideration, India’s arbitrage opportunities come to the fore.”

Not just price, but also value arbitrage—or cheaper products with at-par features. The SaaS startups also invested aggressively in marketing and customer acquisition, targeting small and medium businesses (while the likes of Salesforce went after large enterprises).

B2B charge

About a quarter of the Indian unicorns are global B2B companies and, on average, require less than half of capital that B2C ones need for a $1-billion valuation – technology investment firm Iron Pillar.

The very ingredients that made Freshworks one of the first SaaS Indian unicorns in 2018 and the first VC-backed Indian startup to cross the $100 million ARR (annual recurring revenue) milestone. Freshworks, and the likes of Druva and Capillary Technologies, have set the trend. We predicted earlier this year that:

“Anywhere between half a dozen to a dozen Indian SaaS startups will almost certainly breach the $100 million ARR milestone over the next two-three years. This isn’t just optimistic musing—there’s also the sheer law of averages at work. Remember those 2,300 new B2B startups that have sprung up in recent years, many of which are SaaS-oriented. Such a Cambrian explosion of SaaS startups in India has sowed the seeds for several more $100 million ARR companies to emerge over the next decade.” 

And SaaS unicorns? We’ll have to wait and watch.

Even outside the SaaS space, the winds of change are blowing. While B2C e-commerce has well-entrenched players in most retail sectors, the chorus of B2B firms has been getting louder.

Or, “B2B is the new B2C in India,” as B2B online marketplace Udaan’s founders say. The same set of enabling factors that helped B2C startups— the prevalence of internet-enabled phones and digital payments—have fuelled their B2B peers. To boot, the government’s move to open up foreign direct investment (FDI) in B2B and curb FDI in B2C has helped. 

Record Setting

Udaan was started in 2016 by three ex-Flipkart executives – Sujeet Kumar, Amod Malviya and Vaibhav Gupta. It took the B2B company two years to breach the $1 billion-barrier, comfortably eclipsing the previous record of four years set by B2C food delivery platform Swiggy

Nonetheless, as our story on Udaan noted, B2B e-commerce has its challenges, not least of which is organising a fragmented market where retailers prefer to strike deals offline. Then of course, giants like American e-tailers Walmart and Amazon are amping up their B2B game. (We covered the past decade in e-commerce here.)

Even the flow of VC money is gravitating to B2B. Tiger Global is on the prowl again, flush with funds from its Flipkart exit in 2018. Now led by Scott Shleifer, Tiger is just as bullish, but on B2B firms this time around. But after SoftBank’s travails this year, Tiger needs to mind the valuation gap. Why? 

“The eventual goal of every SaaS startup is to get to IPO. The valuation gap is the difference between what the public market multiples are pegged at and the valuation that private investors are willing to pay. Unlike consumer-focused companies where proxy metrics such as GMV (gross merchandise value) and traffic can be used to justify high valuations, SaaS companies operate under a much more stringent set of measures typically pegged to metrics such as revenue, profitability and growth.”

In other words, the focus has now shifted to strong and performing business models over high valuations—a harsh lesson two of SoftBank’s marquee companies learnt this year.

Whither the exit

The one-two punch of Uber’s plunge since its IPO in June and co-working startup WeWork’s meltdown that forced a bailout by SoftBank a few months later turned the giant SoftBank machine from one that was spewing cash to one that is now sputtering for it. Furthermore, as we explained:

Billion-dollar unicorn exits won’t even begin to nudge the needle for SoftBank—they need Decacorn exits of $10 billion plus to reach their target returns.”

Among the heavily-funded Indian startups, other than Swiggy and edtech company Byju’s, every name on the list is backed by SoftBank. And the recent trend among them is to talk of positive unit economics, or profit and, in a couple of cases, an IPO. 

Among them, the strangest is hospitality company OYO’s plan to go public in 2022. And not just because, based on OYO’s valuation report, its losses have gone up far faster than revenue in the financial year ended March 2019, (even though it claimed otherwise). But because of the inevitable scrutiny it has come under post the WeWork debacle, given the similarity of their business models. 

As long-time readers of The Ken know, we have raised questions about OYO’s business model for years. Starting in 2017, from questioning whether its original partial-inventory, minimum guarantee model was a Ponzi scheme that could easily be gamed to show increasingly larger traction without any real customer uptake. Even after seemingly moving away from this model, question marks linger over its unit economics despite numerous pivots. All made believable by OYO’s world of startup kayfabe.

Perhaps necessary since SoftBank’s and OYO’s fortunes are so closely intertwined given SoftBank has led all the funding rounds through which OYO’s valuation grew from $100 million in 2015 to $10 billion-plus now. Or is it $10 billion? As we said in our analysis of OYO’s valuation report, valuation is just one of OYO’s five big headaches.

As we wrote in 2017:

“Business models are ephemeral—they can be changed over time like OYO seems to have done with respect to minimum guarantees. But more crucially, no one cares about the business model—the company, the founder, the investors and the media.

Instead, what they care about is the narrative on which the company is positioned. The ‘vision’ that will disrupt large industries and markets.

This is actually the real Ponzi that OYO succumbed to. The “Ponzi scheme of ambition”.”

All this puts OYO most at risk according to our analysis of how SoftBank’s big Indian bets stacked up post WeWork.

At a lower risk threshold is Paytm—India’s most valuable startup, with a value of about $16 billion. Not because it’s not SoftBank-backed or that its financials are healthy. No. But because of its other marquee investors—China’s Alibaba and its financial services affiliate Ant Financial, as well as Warren Buffett-led Berkshire Hathaway. 

Paytm’s moment came in November 2016. Remember “demonetisation”? Well, that turned out to be a double-edged sword for Paytm’s wallet business. Because demonetisation created a new challenger—UPI, an indigenous, real-time, mobile-based payments system.

Paytm ignored UPI at first, pushing its wallet business and starting its own payments bank. That helped Flipkart-owned PhonePe (and a unicorn itself) and Google Pay build sizeable leads in the UPI business. But, India’s much-feted payments bank business was, well, a fiasco, while the cashback-driven UPI dogfight is yet to see a clear winner.

Paytm though has since diversified into service verticals like lending, insurance, mutual funds, and even movies and travel. It has ruled out any immediate plans for an IPO, saying it first “wants the financial services business to take off.”

Flag Bearer

Paytm has been a payments flag-bearer for a while. The weight of its legacy directly impacts India’s $30 billion-plus fintech industry. As does its future. “If Paytm doesn’t succeed, it will affect India’s whole fintech narrative,” said the founder of a rival payments company

However the future may not be as comfortable for Paytm Mall, Paytm’s e-commerce arm. The unicorn has gone through multiple pivots through its history as it does battle with Flipkart and Amazon.

Another Indian unicorn that is aiming for an IPO within the next four years is Ola. What’s unique about the ride-sharing giant is that though it was among one of SoftBank’s earliest big bets in India, it has slowly but surely insulated itself from SoftBank. Perhaps necessarily so given its #1 rival is SoftBank-backed Uber.

Through most of the decade, Ola and Uber have been in a race to the bottom for supremacy of India’s roads. Driver incentives, rider incentives, cab leasing, auto taxis, bike taxis, B2B, acquisitions of smaller rivals and even ill-fated attempts at foodtech—both did it all. If one made a move, the other was sure to follow. But most of their pivots were centered around cabs, the very genesis of their operations, as we articulated in 2016:

“Both Ola and Uber, operate through a loophole in the Motor Vehicles Act, by contracting vehicles with what is known as an All India Tourist Permit, or AITP. The AITP allows a taxi to operate anywhere in the country, but only and strictly for tourism purposes. This, against a ‘city permit’, given to radio-taxis or meter-taxis, which allows for ‘point-to-point’ drops. The reason is simple. The AITP allows for no cap in fares; in other words, it enables these companies to offer both throwaway fares, or even include surge, an important distinction from the city taxis, where the fare is capped and calibrated with meter.”

That’s changing now. Earlier this year, the Motor Vehicles Act was amended to recognise aggregators as marketplaces, opening them up to regulation. And already the government is considering capping the commission cab aggregators earn. And while Ola and Uber figure that battle, Ola does have an ace up its sleeve.

Mission: Electric—Ola’s EV subsidiary and member of the 2019 Indian unicorn club. It’s a no-brainer really:

“Ultimately for cab aggregators, the EV lure lies in reduced costs. A January paper by the International Council of Clean Transportation points out that the total cost of operating an EV becomes comparable to that of a petrol-powered car as EV range goes up. Excluding subsidies. Add in government sops, and as the price of batteries and EV tech in general goes down, and operational costs will only decrease.”

The one duopoly in India to stay SoftBank-free thus far is the Swiggy-Zomato foodfight. Not that this means their growth story has been any different from the others—aggregate an unorganised market, sell the service online, fuel it with discounts to annihilate the incumbents, and use investor money to blitzscale. And let losses balloon.

Partly because, much like delivery for Amazon-Flipkart and drivers for Ola-Uber, the food-tech industry’s unit economics is dependent on the fickle gig economy. No wonder Swiggy’s losses rose 6X in the year ended March 2019. 

But Zomato’s losses exploded nearly 25X. That’s primarily because it pivoted from being a search engine for restaurants two years back (when it even announced profitability) to compete with Swiggy in the food delivery sweepstakes. The duo have also built cloud kitchens, or their versions of it.

Swiggy has now moved into on-demand delivery, a business it launched a few months back. It’s still early days, but as we wrote last year, “Swiggy is taking a bold step. However, the move is fraught with risk.” Just ask hyperlocal delivery startup Dunzo.

Zomato, meanwhile, had hung its hopes on Zomato Gold—a subscription service for in-restaurant dining. We pointed out Gold’s essential problems when it launched in 2017. Despite the initial success, we called it a ticking time bomb” since Zomato reaped the benefits and restaurants bore the risks.

A new world for Soonicorns

Gold exploded this August. And not in the positive sense. Thousands of restaurants revolted against Gold and industry body NRAI (National Restaurant Association of India) asked not just Zomato, but all food aggregators to stop the practice of deep-discounting.

Not just in food-tech, Indian e-commerce overall is facing a massive backlash by suppliers fed up of bearing the brunt of the scorched-earth policy that helped create these Indian unicorns. Restaurants against Swiggy-Zomato; hoteliers versus OYO-MakeMyTrip; retailers taking on Flipkart-Amazon; drivers versus Ola-Uber.

“Their venture capital backers have burned billions of dollars in loss-making businesses in the hope that one day when the fires clear, their companies would end up as natural monopolies. Free to increase prices and reduce spends.

Well, that day has come. The fires have cleared, but there’s a new problem at hand.”

It is a brave new world—of more cautious investments and chasing healthy financials over healthy valuations—that future Indian unicorns face.

And there are plenty of these so-called soonicorns.

52 to be precise, according to Nasscom, India’s apex IT services association.

“Unlike 2018, this year investments were better distributed across different round sizes. This led to an increase in the number of start-ups with total funding greater than $50 million, creating a strong pipeline of potential unicorns,” Nasscom said in a recent report.

“An expanding pool of start-ups with resources available to gain market share and leadership, also confirms that the years 2018 and 2019 were not an exception in terms of number of start-ups becoming unicorns.”

Some of the soon-to-be unicorns include:

Grofers was beaten to unicorn status by rival online grocer BigBasket, which relied on subscriptions and fast delivery. While BigBasket is also focusing heavily on profitability, Grofers is hoping its latest pivot—targeting value-conscious customers and betting on private labels—will be its last.

On-demand home services provider UrbanClap, which has narrowed down its operations to only two categories, beauty and home. It has also tied up with Ikea and expanded to Dubai as it looks to become India’s first home services unicorn.

Warehouse automation and robotics maker GreyOrange, the best-funded startup in its space after raising $140 million last year.

Online used car dealers CarDekho and Cars24 are both pivoting to offer more services and take on offline dealers, with recent funding rounds boosting their valuations.

Online truck aggregator BlackBuck, reportedly valued at over $900 million after a recent funding round. Rival Rivigo, which became a unicorn in 2019, has been under pressure from its private equity backers to dump its asset-heavy model to cut costs and improve unit economics. E-commerce logistics company Delhivery became a unicorn this year after choosing a Softbank investment over an IPO.

Health-tech startup Practo, which had raised too much venture capital, at too high a valuation and squandered its market leadership. It raised about $17 million earlier in 2019, two years after its last round.

Nykaa, India’s largest online beauty and cosmetics retailer, which reportedly turned profitable in fiscal 2019. It has expanded into private labels, physical retail and even apparel—this, even as the competition heated up.

The wide-ranging list brings to mind Lee’s words in 2013: “As such, we don’t think this provides a unicorn-hunting investor checklist, i.e. 34-year-old male ex-PayPal-ers with Stanford degrees, one who founded a software startup in junior high, where should we sign?”

Perhaps the best way to conclude will be how Lee ended her article in 2013, by tipping her hat to the members of the Indian unicorn stable, saying “we look forward to learning about (and meeting) those who will break into this elite group next.”

So do we, Lee. So do we.

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