Which are the next desi unicorns?

The Indian start-up story is reminiscent of Flipkart, Ola, Paytm, Zomato, Quikr, ShopClues, InMobi, ReNew Power and Hike, all of which have crossed $1 billion in valuations. But when the sector is touted as a key job creator, with the ability to generate over 2,50,000 jobs across over 10,000 start-ups in the next two years, could India produce more unicorns?

Data by CB Insights reveals these nine Indian unicorns are now part of the exclusive Global Unicorn Club, comprising 214 companies, and collectively worth $745 billion. But compared to China with 46 unicorns (including Xiaomi, Lu.com, Toutiao, etc) and the USA, which is home to over 50% of the global unicorns, India trails far behind.

"Earlier, there were no Indian unicorns. Now there is more than a handful, which is great. This reflects the potential and promise our entrepreneurs hold. We will see a lot more unicorns from India in the future,'' says Vivek Mansingh, general partner, YourNest, an early stage fund house.

Experts say the start-up equation in India cannot be compared with that of the USA, where this culture is at least four to five decades old.

According to Sucharita Eashwar, founder and CEO, Catalyst for Women Entrepreneurship, it is hardly 10 years since both the regulatory/governance and funding norms as well as the culture transformed to encourage and enable new-age firms. "Till then, educated Indians were applauded for getting jobs with established corporations. Banks were wary of providing credit, while equity investors were not interested in start-ups."

Experts say for a start-up to grow and transform into a unicorn, a 360-degree approach is required. "This includes support from both the state and central governments, along with investors and peers. This has already started to happen with the central government finding ways to collaborate with start-ups on many new-age technology projects and states like Kerala, Goa, Rajasthan working to create a cohesive ecosystem for start-ups to flourish," says Bhaskar Majumdar, managing partner, Unicorn India Ventures.

Secondly, funding is a key criterion in the making of a unicorn. It is public knowledge that unicorns command most funds and investor attention. In 2017, about $13.7 billion got pumped into the Indian start-up industry, across 820 deals. But the likes of Ola, Paytm and Flipkart garnered upwards of $1.5 billion each.

Thus, there is a need to incentivise angel and equity investors to be less risk-averse and to open up to more start-ups in different sectors, says Eashwar. "Also, the credit finance system should be enabled to provide loans at reasonable interest rates and lower collateral requirements.''

Majumdar says there is a need for the emergence of a formal investor ecosystem, especially in the early stage phase. "We have far too few angels helping start-ups achieve their growth ambitions. More family offices should look at start-ups as a long-term asset class because returns will come."

Family offices of business honchos like Azim Premji and Ratan Tata have accelerated their investments into startups off late. Investment into a startup by someone like Premji Invest enhances credibility and helps acquire leadership in the market segment, says PC Musthafa, co-founder of iD Fresh, which received $25 million through Premji Invest (and others). Musthafa believes by partnering with such investors, a start-up can reach new markets, innovate newer products, and set up world-class manufacturing facilities.

According to serial entrepreneur Sandeep Aggarwal, founder of ShopClues and Droom, investors have always expressed their preference for tech-based start-ups as they consider such companies to be future-ready. "A firm that can incorporate, adapt and implement its existing operational framework according to cutting-edge technologies to optimise revenue potential has managed to secure more funding and from multiple investors'', says Aggarwal.

Experts say going ahead, start-ups like Oyo, Practo, BigBasket, Byju, MobiKwik, with backing from names like SoftBank Vision Fund, Sequoia Capital, Alibaba, etc, could perhaps grow into unicorns.

''I would like to see more globally successful startups from India in the B2B, artificial intelligence, IoT and the software space. Currently, most unicorns operate in the B2C space and are focused primarily on India. We need to establish ourselves as a nation capable of creating global unicorns," says Mansingh.