By 2025, India can have 200 unicorns. Here is how
We are living in an era of unprecedented innovation and disruption — benefitting from the surge of start-ups, armed with transformative products, business models, and capital to take on the world.
Today, India is the third largest start-up ecosystem globally by number of start-ups, with more than 15,000 start-ups opening shop in 2020, up from 5000 in 2010. With many underlying enablers such as smartphone and internet penetration, cloud computing, application programming interfaces (APIs), and national payments stack in place, Indian entrepreneurs are seizing on technology-led transformations.
Looking ahead, we see four key themes play out.
One, the pace of unicorn creation will accelerate, leading to their number to triple over the next four years. Two, many of these unicorns will establish solid global presence in their pursuit of growth. Three, the private market funding surge that started in 2020 will continue. Four, given well-established funnel of unicorns and “soonicorns” (startups that will soon turn into unicorns), we expect 40 to 50 of them to go public by 2025.
Three years ago, India had nearly 18 unicorns. Today, we have already reached 73 unicorns, five of which are decacorns (with a valuation of greater than $10 billion). Our projections suggest that India is likely to reach 200 unicorns and 20 decacorns by 2025.
We already have a healthy pipeline of approximately 60 soonicorns (with a valuation of $500 million to $1 billion), 220 emergers (with a valuation of $100 million-$500 million), and 180 nascent companies (with a valuation of $50 million-$100 million).
This kind of growth does have precedents. China, for example, went from 54 unicorns in 2016 to 175 unicorns by 2021.
Riding high on this wave, many Indian start-ups will become global operators. We see two kinds of approaches.
One, companies selling business-to-business (B2B) products and services —such as Freshworks and BrowserStack, which make in India for the world — will look to invest heavily in on-ground sales and marketing in markets such as North America.
Two, business-to-consumer (B2C) companies — such as Cars24, OYO and Urban Company, which have found success at scale in India — will look to replicate and adapt their model across similar ecosystems outside India in markets such as West Asia, Southeast Asia and even Australia.
Sources of funding
Private market funding data indicates a solid belief in the Indian start-up growth story. Funding increased from $6 billion in 2016 to $18 billion in 2019 and $17 billion in 2020. The funding trend accelerated in 2021, with $30 billion funding in the first three quarters of the year alone.
For unicorns and decacorns, as they look to scale further, access to private funds would be increasingly difficult given their ultra-high valuations, forcing them to turn to public markets. Similar trends have been seen across United States (US) and China where decacorns attracting private capital stands at just 4% and 5% of the entire unicorn list.
What we have seen over the years is that a typical unicorn has a runway of four to six years before hitting the public markets. Given nearly 80% of the Indian unicorns have cropped up only in the last three years, we anticipate a large initial public offering (IPO) funnel in the next few years.
We are already seeing signs of this with the bumper IPOs of Zomato and Freshworks. While currently the number of listed Indian start-ups remains abysmally low at less than 10, with the surge in number of unicorns, our projections indicate that nearly 40-50 Indian start-ups will get listed over the next five years. This could result in an enormous wealth-creation opportunity for investors in India but would require regulatory support to ensure that their listing happens on Indian bourses.
Alternately, many are looking at US listing as an option – especially those with US customers or ones looking for understanding investors familiar with such business models and the longer path to profitability. MakeMyTrip was among the early players which had a celebrated listing on Nasdaq back in 2010. Freshworks opened a new chapter with its listing on Nasdaq in September 2021. Now, Inmobi is also planning to follow suit. Other startups might soon follow.
Some are also eyeing listing on the US markets through the special purpose acquisition company (SPAC) route. Total IPO fundraising by SPACs has grown from $3.5 billion in 2016 to over $130 billion in 2021, accounting for more than 64% of IPOs by volume in the US. While this route provides a shorter time to market and lower regulatory scrutiny, success has been a mixed bag so far – many listed SPACs have been trading below their issue price. It will be interesting to see how this pans out for the likes of Flipkart and ZoomCar who are considering this route.
Whether through IPO, or through SPAC, successful public market exits will accelerate the start-up flywheel – through recycling of private equity/venture capital cash, and new investors coming into the market. The future looks bright for Indian start-ups and we are excited to see their growth journey unfold. 200 unicorns by 2025 looks ambitious, but that is what this space is all about.
Vikash Jain is a managing director and senior partner with BCG, and leads the Tech, Media, & Telecom (TMT) practice in India. Shaleen Sinha is head of Growth Tech India at BCG. BCG Growth Tech works with leading digital disruptors and start-ups. Vaibhav Malhotra is a principal with BCG, and a core member of the Growth Tech and TMT practice.
Ujwal Kalra and Pranay Boobna are consultants and core members of Growth Tech and contributed to the piece
The views expressed are personal
This is the first part of a special HT-BCG series on the Indian economy