India, a galloping ground for unicorns

Earlier this week, India counted its 100th unicorn with Open Financial Technologies raising $50 million in a funding round that values the neobanking platform at $1 billion. The important milestone has arrived 11 years after India produced its first unicorn. The pace of creating winning startups that draw big interest from venture capital (VC), however, is speeding up. In 2021, 44 unicorns were created in the world's third-largest startup ecosystem. Over half of India's unicorns have achieved this feat in under five years, and there are projections India could have 250 of them by 2025. The current list of unicorns, including those that have reached valuations of $1 billion before slipping off the perch, is thought to have raised $90 billion and have a combined valuation of $333 billion.

Yet, profits are hard to come by, and, when they do, they travel abroad. Less than one in four of India's unicorns has been profitable for any given financial year. Scorching growth with a convergence to the path to profitability is incredibly difficult to achieve. A fair number of the dozen-odd technology listings last year have seen investors dumping the stocks over profitability concerns. This brings out the difference in how the stock market and VC value startups where traditional metrics may not provide a true picture of the disruptive potential of these companies.

Then there is the ecosystem. One in five of the startups that have reached unicorn status is incorporated in business-friendly jurisdictions abroad. Last year's crop of 44 has five with headquarters overseas. Taxes on cryptocurrencies could cause a further exodus of startups working on Web 3.0, the next avatar of a decentralised internet using blockchain. India's evolving approach to privacy protection could affect decisions to incorporate at home. The government is expecting technology stacks built on 5G cellular services, public digital platforms, semiconductor designing and electronics manufacturing to yield a new generation of unicorns. This could yield a multicorn forest.