India is minting unicorns at a near-record pace

March 24, 2022, 10:32 AM UTC

India’s unicorn club is booming as investors continue to flock to the country’s sizzling tech scene. 

India on Wednesday minted its 13th startup worth more than $1 billion this year, one of the country’s fastest rates of unicorn creation to date.

At this point last year, India had minted five unicorns; between October and December last year, it minted 15. For all of 2021, India added 44 firms to its unicorn ranks, easily dwarfing the 37 firms that had hit the $1 billion valuation milestone in the previous decade combined. 

Last year’s unicorn surge coincided with Beijing’s crackdown on Chinese tech companies, which spooked investors and prompted them to look for alternative places to park their money. At the same time, India’s tech startups were growing rapidly as the COVID-19 pandemic forced Indian consumers to turn to online business for their daily needs—from groceries to medicine. The pace of unicorn creation this year—roughly one per week—signals that the investment surge in 2021 wasn’t a blip—and that the global investors who turned their attention to India last year remain focused on opportunities there even amid a volatile global market. A study from PwC, a large global accounting firm, suggests the pace of unicorn creation will actually pick up as 2022 progresses; the company estimates that India will add more than 100 unicorns this year.

Oxyzo Financial Services, a Gurgaon-based financial services company, became India’s latest unicorn when it reached a value of $1 billion in a $200 million funding round led by Alpha Wave and co-led by Tiger Global, Norwest Venture Partners, Matrix Partners, and Creation Investments.

Last week, Amagi, a Bangalore-based media technology company, raised $95 million in a funding round led by venture capital firm Accel that valued the firm at just over $1 billion. New entrants to the unicorn club also include analytics solutions firm Fractal, edtech firm LEAD, and HR tech firm Darwinbox, which all reached valuations of roughly $1 billion. Ethereum-based blockchain provider Polygon is the most valuable startup to achieve unicorn status this year; in fact, it reached ‘decacorn’ status. In February, it raised $450 million through a private sale of its native MATIC token in a round led by Sequoia Capital India to reach a valuation of over $10 billion. 

India now has 94 unicorns total, with ed tech firm Byjus leading the pack. Byjus’s valuation of $22 billion—reached earlier this month after a $800 million funding round from Sumeru Ventures, Vitruvian Partners, Blackrock, and company founder Byju Raveendran—is the country’s highest.

“We see continued excitement around the tech sector in India, given that the pandemic has accelerated the virtualization of the Indian economy,” says Manisha Girotra, CEO of Moelis India, an investment bank. In the first year of the pandemic, India’s population of internet users rose by 4%. Of India’s 1.3 billion people, 825 million used the internet as of March 2021, according to data from the state-run Telecom Regulatory Authority of India. India’s pool of smartphone users surged by that same amount in 2021, reaching 800 million. The number of smartphone users is expected to surge to 1 billion by 2026, according to a report by consultancy firm Deloitte last month.

Indian startups raised $35 billion in 2021, a three-fold increase over the previous year, according to PwC.

Many global investors shifted money to Indian tech startups following Beijing’s tech crackdown, but the flood of investment into Indian tech startups is more than a knee jerk reaction to China’s regulatory spree. Nitin Rakesh, CEO of technology firm Mphasis, attributes the boom to India’s wealth of tech workers, its still-untapped digital audience, and its large population of entrepreneurs.

“The kind of excitement around India is what happened in China 15 years ago. There is enough competitive tension in every segment,” says Girotra.

To capitalize on the investment frenzy, digital firms are seeking new funding and favoring venture capital over public offerings, which is pumping up the valuation of the country’s top startups. Volatile public markets are forcing firms to reconsider public offerings. Over the last month, India’s stock market has twice crashed by over 3% in a single day and recovered almost as quickly amid the geopolitical uncertainty caused by Russia’s war in Ukraine. India’s Bombay Stock Exchange index is down 7% from its peak of 62,156 points in October last year. Investors remain on tenterhooks as rising fuel and food prices and a fresh wave of COVID in China stoke inflation worries and supply chain disruption. 

Startups are also eager to put some distance between their own IPOs and the dismal offering of digital payments firm Paytm, which burned investors last November. After raising $2.44 billion in India’s most anticipated IPO of 2021, Paytm shares sank 27% below their issue price of $29 on their first day of trading. The stock is currently trading at around $7.5, more than 70% below its issue price.

Raj Narayanam, founder at B2B fintech firm Zaggle, says that his company was planning to launch an IPO in April or May but has now deferred it to July or August because of volatile market conditions and poor sentiment among retail investors who lost money in tech IPOs toward the end of last year.

He faults startups and bankers that tried to “grab whatever money the market could offer” instead of pricing shares “sensibly.” 

“That made market conditions difficult,” he says. 

Zaggle is also in talks to raise capital with top global private equity funds, says Narayanam, who estimates that his company’s next valuation will be roughly $1 billion, up from around $500 million in 2020.

As India’s unicorn club grows so too do the ranks of its smaller startups. 

Fundraising deals for Indian startups valued between $100 million and $200 million have significantly increased since last year, says Amit Nawka, partner and India startup leader at PwC India. India has roughly 400 startups with a valuation of about 1 billion rupees ($13.5 million), which represent fertile ground for more investment deals and unicorn creation, says Nawka.

“Those investors who would have missed the bus on investing in Chinese startups don’t want to miss the bus in India because this opportunity won’t come soon in any major geography,” says Nawka.

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