What has changed for Indian unicorns from Flipkart-era to OYO-era and what’s next

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Published: June 17, 2019 4:33:29 PM

If the discussions and focus post Flipkart-InMobi era were on GMV, urban internet and smartphone users, and raising tonnes of capital, the new startups would see discussions around profitability and how fast can they grow after achieving profitability and ditching discounts and venture capital.

What has clearly changed is the government’s willingness to recognise startups as among key pillars towards job creation and innovation. (Image: Bloomberg)

The rise in the number of unicorn startups in India has roots in its nascent yet fast evolving startup ecosystem. For the emerging and developing Indian economy, having the third largest startup ecosystem (after the US and the UK) in terms of number of startups at around 7,700 (as per Nasscom last year), which has so far seen as much as 30 internet businesses hitting the hallowed $1-billion valuation mark, shows the resiliency and tenacity of Indian entrepreneurs to build large digital ventures amid regulatory and bureaucratic inefficiencies that has eased only in last few years.

The environment in other ecosystems including the US, the UK, Israel, and also China has been far more enabling than in India given their respective Ease of Doing Business rankings at 8, 9, 49, and 46 last year even as India jumped 23 ranks to 77 in the ranking. So, what has clearly changed for India to take on more developed ecosystems from the 2011-12 era when InMobi and Flipkart turned unicorn to the likes to Byju’s, OYO, Bigbasket, and Delhivery in around last two years is the government’s willingness to recognise startups as among key pillars towards job creation and innovation.

Capital Enablers

This willingness has come out from the changes that have occurred on the ecosystem and its stakeholders’ part, that is, investors, entrepreneurs, and customers. The sea change that has occurred is with respect to the venture capital/ private equity infusion. From a paltry $4.5 billion in 2009, investors pumped in $26.3 billion last year even as the number of deals also went up from 216 to 793 for the respective period, as per a May 2019 report by Bain & Company.

“Supply of capital has become easier. High-net-worth-individuals (HNI), family businesses, and multinationals earlier didn’t want to invest. Now they all have understood that startup ecosystem cannot be ignored as one day these startups may take on their large businesses,” Anup Jain, Managing Partner at early-stage VC fund Orios Venture Partners told Financial Express Online in an interview.

Large HNIs and legacy entrepreneurs including former Google India head Rajan Anandan, former Infosys CFO T.V Mohandas Pai, Ratan Tata, Everest Flavours head Anand Ladsariya, angel investors Sanjay Mehta, Growth Story’s founder K Ganesh etc., have been among the top startup backers even as family offices of Hero MotoCorp, Reliance, K Damani Group, Piramal Group, Catamaran Ventures, PremjiInvest etc., have invested in startups directly or through their corporate VC arms.

The boom of Indian unicorns. Source: Orios Venture Partners

Capital also made Indian entrepreneurs ambitious. “Factors like infrastructure, GST, talent were non-existing four-five years back. So, entrepreneurs used to come with a very limited idea of how their market will grow but the capital wasn’t easily available and hence they weren’t very ambitious. Today the ambition level has changed as investors and entrepreneurs both have become less risk-averse. There is a greater appetite to try new ideas,” said Jain.

India vs Bharat

On the entrepreneurs’ part, the growth has come from expansion beyond metros and tier-I cities. The startups that turned unicorn served the first 300 million internet users based in urban areas to expand to other 200 million in rural areas. The new generation of unicorns to come up would be rural-first or tapping customers in semi-urban or rural areas by developing solutions for them.

“Entrepreneurs are now addressing problems of tier-II and tier-II cities through technology. This is where we have lacked and this is where innovation has to happen as unlike the west, India needs to have a model that addresses different sections of the social economic strata,” said Jain adding that now there will be models made for next around 300 million customers in the country. Startups like Ninjacart, AgroStar, Forus Health are among the prominent startups catering to customers beyond urban cities.

Leaner and Sharper

Another change that Jain sees is shifting focus from gross merchandise volume (GMV)-led growth. From spending millions of dollars on generating high ticket value or GMV transactions through products like laptops, mobiles, etc. from a few customers, it would be about fewer dollars spent and getting more customers. “Now it will not be about growth in GMV but the number of customers. It will be about getting 10-20 million consumers on your platform in six-12 months using a similar amount of capital instead of acquiring very high ticket paying yet fewer customers.”

Profitability, however, is one aspect that has remained more or less unchanged for entrepreneurs to stay focused on acquiring customers and market share. While Mu Sigma and InMobi, Zomato reportedly turned profitable around 2016-17, others are yet to follow in line. Next five years, said Jain, will involve discussions around profitability and running operations based on that. So how fast can these businesses actually grow post profitability ditching discounts and venture capital would differentiate them from those that are money guzzlers.

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