Startup Street: Time To Billion-Dollar Status Has Nearly Halved Since India's Earliest Unicorns

Two months into 2021 and India has already seen three companies turn unicorns, highlighting that startups are getting to the billion-dollar valuation faster.

Last week, Mumbai-based construction procurement marketplace Infra.Market and healthcare technology startup Innovaccer raised fresh funds that propelled them into India's fast-growing unicorn club. Not long ago in January, Digit Insurance had, too, achieved billion-dollar status.

That only underscores the kind of funding Indian startups have received in the past three years. Till 2018, India had 10 unicorns. The nation has since added 28, according to Venture Intelligence data. That defied the macroeconomic headwinds the country has faced in recent years.

On average, it takes about eight years for an Indian startup to turn into a unicorn. But that period has been shrinking. A recent report by Orios Venture Partners shows that newer tech firms have been hitting the billion-dollar-mark sooner than their older counterparts.

India's oldest startups like MakeMyTrip, Naukri.com and Justdial—founded prior to 2005—took roughly 15 years to become unicorns. Younger firms such as Razorpay, Swiggy, Rivigo and Unacademy, according to Orios report, became unicorns in about five years on average. Udaan, Ola Electric and Glance took 2.4 years.

One of the likely reasons, the report said, for younger startups turning unicorns sooner may be that a number of founders are those with prior startup experience and can secure funds more efficiently.

More startups may be on their way to the unicorn club, according to Nasscom. In a report earlier this year, the tech industry lobby said at least 12 more newbie Indian ventures will see their valuations cross $1 billion in 2021. The pipeline of unicorn startups remains strong, growing 1.5 times since 2019, it said.

The increasing number of tech unicorns has driven investor interest in India's startup ecosystem. Private equity and venture capital funding in the country has doubled in the last five years, according to KPMG India. Not only is private equity funding more, but it is also holding investments for longer periods, suggesting that the ecosystem is maturing.

The firm's analysis of 300 deals showed that annual returns on funds deployed by private equity far exceeded the returns by India's capital markets across sectors.

“Despite macroeconomic headwinds, PE/VC investments in India have steadily grown, with funds continuing to actively scout for opportunities across the growth cycle of companies,” it said.

Fintech Has Most Unicorns

Most unicorns in India come from the fintech sector, followed by retail and SaaS startups.

That shows how underbanked Indians were before a number of payments companies started cropping up, according to Rehan Yar Khan of Orios Venture Partners.

“The banking system, whether lending or wealth management or payment, had not spread deep. Now the fintech unicorns have come in and started filling that gap,” Khan told Money9 in an interview. “We believe it is yet a very large ocean and a lot more companies need to come into that space.”