India's New Unicorns
strategy+business|Winter 2019
The world’s largest democracy is becoming a seedbed for billion-dollar startups.
Vishnupriya Sengupta and Suvarchala Narayanan
IN 2013, when Aileen Lee, founder of Cowboy Ventures, coined the term unicorn to refer to technology startups with valuations over US$1 billion, there were 39 unicorns in the United States. India had none. Its fledgling startup scene faced significant barriers: limited funding, a dearth of talent, inadequate infrastructure, and a plethora of cultural and social challenges. For college graduates who aspired to management jobs in large IT firms and multinational corporations, entrepreneurship seemed unappealing. Young male entrepreneurs often talked about being rejected by prospective brides and their parents.

“Hiring was a massive challenge,” recalls Raghunandan G, who cofounded the Bangalore-based ride-sharing aggregator TaxiForSure in 2011, four years after finishing his MBA at the Indian Institute of Management. “My business school classmates all had education loans. The guys from engineering school were married, and had housing loans. Startups were seen as incredibly risky.” Even friends who believed in him and his idea were reluctant to come on board.

Around the same time, Bhavish Aggarwal, an Indian Institute of Technology (IIT) graduate, was bringing another ride-sharing aggregator called Ola to life. In 2010, as a staff researcher for Microsoft, he had rented a car to take him to Bandipur National Park. Midway there, the driver decided to renegotiate the rate. Aggarwal argued, and the driver forced him out of the car and drove away. With fellow IIT graduate Ankit Bhati, he opened a ride-sharing business based in Mumbai, which they named Ola. As he later told the Economic Times, when his parents heard the plan, they asked why he would quit Microsoft to become a travel agent.

What a difference a few years can make. Aggarwal is now one of the bestknown entrepreneurs in India. His company, which relocated to Bangalore, became a unicorn in September 2018, and is now valued at $5 billion. In July 2019, it spun off another unicorn, the electric vehicle manufacturer Ola Electric, with a Softbank investment of $250 million, a $1 billion valuation, and a high level of entrepreneurial confidence. “We are a very experimental company,” Aggarwal told an interviewer in 2019. “We let our employees take risks. If we fail, so what? We will succeed at something.”

As for Raghunandan G, he is now an angel investor, funding and advising other fast-growing startups. He took up this role after selling TaxiForSure to Ola in 2015 for $200 million. (The shares he received in Ola ultimately turned out to be worth about $19 million.)

Similar stories of rapid riches are being told throughout India. Indeed, the rise of unicorns in this country is not just a boon for those who have invested in them. It’s increasingly seen as a sign that the Indian economy is reaching a turning point and that its entrepreneurial culture is maturing.

Ola, for example, was one of 11 Indian companies that became unicorns in 2018 — more than in all previous years combined. Other members of the class of 2018 include online insurance company Policy Bazaar, hospitality company OYO, and B2B software-as-a-service (SaaS) company Freshworks. That year also marked the biggest e-commerce deal in the world to date. Walmart paid $16 billion to acquire a 77 percent share of the Bangalore-based shopping site Flipkart, which had been founded in 2007 by two former Amazon employees, had become Amazon’s fiercest rival in India, and had gained unicorn status in 2012. This acquisition also signified the largest exit for venture capital and private equity firms in India to date; their combined return on investment amounted to $14 billion, while Flipkart’s valuation rose to $22 billion. The first three quarters of 2019 have already witnessed the emergence of another eight unicorns (see table, next page). Udaan, a B2B e-commerce platform, gained unicorn status just two years after its inception, and that may be the pattern in the future: There are many more “soonicorns” in the wings.

Escape velocity

The emergence of Indian unicorns is best understood as a new force in the global economy. According to Indian Tech Startup Ecosystem: Approaching Escape Velocity — a 2018 report by the Indian tech industry association Nasscom — India is the third-largest startup ecosystem in the world. The number of tech startups reached 7,500 in 2018, a growth of 12 to 15 percent from 2017. Many of these were advanced technology startups; companies involving data analytics, artificial intelligence, and the Internet of Things experienced the fastest growth.

“The Indian startup ecosystem is approaching escape velocity, and is setting itself up for a period of sustained growth,” said the Nasscom report. Since then, startup activity has accelerated, along with financing from venture capitalists, private equity firms, and incubators (see “The incubator opportunity,” above). For example, the number of late-stage deals in the first eight months of 2019 has surpassed those of the previous two years. Global tech incubator Y Combinator has funded 12 Indian startups in 2019, compared with five in 2018, while investment applications from Indian companies increased by 50 percent. In a recent interview with the Times of India, Y Combinator president Geoff Ralston said he expected to fund a larger percentage of Indian unicorns in future years. “We think the opportunity represented by Indian startups and founders is enormous,” he said. “It’s because of multiple reasons — one being that there are really smart people, the founders.”

One striking aspect of the tech startups in India today is their ambition for expansion elsewhere in the world. Like their counterparts in China, they recognize that if they can rapidly build a business at home, they can compete elsewhere as well. Indian startups also have some distinctive advantages: overall familiarity with the English language, few restrictions on investment and partnership, a long-standing precedent for inexpensive innovation in the IT services industry, and a large diaspora of technology-savvy emigrants who succeeded overseas and may be ready to return.

Some Indian unicorns are already building a global presence. With funding from Softbank and Airbnb, lodging aggregator OYO (originally called Oyo Rooms) has moved into more than 500 Asian cities in countries such as China, Japan, Malaysia, and the Philippines. In the U.S., according to the Financial Times, OYO is opening an average of one hotel per day, and plans to invest $300 million for further expansion. The six-year-old startup is also aggressively expanding to offer shared working and living spaces. Its acquisition of the Indian coworking space company Innov8 (reportedly for $30 million) was an early step in that direction. Within OYO, Innov8 is still run as an independent business by its 30-year-old founder, Ritesh Malik.

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