While India saw eight start-ups enter the unicorn club (private companies valued at over $1 billion) in 2018, ushering in an era of growth that has never been seen before, experts and industry watchers say this is just the tip of the iceberg.
There are at least a dozen start-ups in India which are exhibiting growth potential to break into the billion dollar club in 2019.
“I think there’s more maturity for a very important reason — the valuations are reasonable and not outrageous. They’ve (companies) reached a certain size and the growth potential looks good because of which big funds want to come and invest,” said Mohandas Pai, chairman of Arin Capital and former director of Infosys.
Pai says the momentum in creating unicorns will keep up next year, thanks to lower inflation, an increase in investment, high consumer confidence and growing wages. With around a dozen firms close to crossing the $1 billion valuation mark, he expects around 8-10 companies to enter the elite club in 2019.
While it’s still a little too early to predict who exactly could end up becoming a unicorn in 2019, investors say the sectors these start-ups will come from would be even more diverse than what was seen this year. Unlike in the boom days of 2015-16, money hasn’t only gone into online retail, digital payments and cab hailing but other segments as well.
For instance, in 2018, hotel room aggregator OYO and online food ordering service Swiggy both raised $1 billion each in a single funding round in 2018. Both companies weren’t even a part of the unicorn club in 2017.
Some notable mentions of firms growing faster than their peers in the market are online grocery firm Grofers, on-demand task management service Dunzo, health and fitness start-up Curefit, logistics start-up BlackBuck and robotics start-up GreyOrange.
While the current boom may hark back to the days of crazy valuations among start-ups, investors and analysts say that hasn’t happened this time around. Founders of newer companies say they are willing to dilute far less than before. An analyst pointed out that, in 2018, except for Swiggy, which is engaged in a battle with rivals Zomato, Foodpanda and UberEats, most of the funding rounds raised by unicorns did not see much dilution of stake.
“I think what we’re seeing is that many of the new entrepreneurs don’t want to become employees by diluting too much. I think they’re being careful and haven’t raised too much money because they’re not burning too much money either,” he added.
But while things certainly are looking up for the sector going into 2019, some say that the endemic issue of start-ups continuing to make losses hasn’t gone away.
Large Indian start-ups are not profitable, pointing to the fact that valuations are not the end all and be all for a necessarily successful business.
For years, Analytics firm MuSigma was the only Indian unicorn to make profit, but a recent share sale saw the firm’s valuation drop to around $850 million.
Ad-tech giant InMobi, which was on track to make a profit in FY17, fell short of its target when it posted a $12.7 million loss in the year ended March 2017. The financial performance of the company in FY18 is not known yet.
“I have a very contrarian view, which is unpopular. It’s not difficult to create unicorns, but it’s difficult to build a unicorn that makes money. You can’t just say this is indicative of a great market opportunity. It’s also indicative of the fact that the founders have not figured out how to make money,” said Vaitheeswaran K, founder of India’s first e-commerce company Indiaplaza.com (Fabmall) and author of ‘Failing to Succeed’.
“The reality is that anybody can sell a dollar for 99 cents. What you need to do is sell 99 cents for a dollar and then see if you can create a unicorn,” he added.