What explains India's unicorn boom in 2021?

About a week ago, an Indian startup founder quipped on Twitter that the definition of a ‘Unicorn’ as used in the venture capital industry should now change to $1 billion of funding raised. The term currently refers to a startup that reaches a valuation of $1 billion.

He was commenting on the flurry of unicorns that have been created globally. The term was originally coined by US venture capitalist Aileen Lee in 2013 when there were just 39 startups globally that fit the definition, which has not changed since then. 

Achieving the milestone was once considered elusive. But India’s example shows the term unicorn no longer holds the same weight as before. In a blockbuster year for startup funding, India saw creation of 42 unicorns, a three times jump from 11 new unicorns in 2020 and nine in the previous year.

Starting with Digit Insurance on January 15 to Pristyn Care on December 8, the unicorns came from a range of sectors. The 42 companies are collectively valued at more than $90 billion. The year also saw the fastest and the slowest unicorns.

Mensa Brands, which acquires Direct-to-Consumer fashion, home and personal care labels, became a unicorn in just six months. While in March, Chennai-based NBFC Five Star Business Finance achieved the status after 37 years in existence.

Fintech was arguably the biggest contributor to the unicorn universe this year. CRED, Groww, Zeta, BharatPe, Mobikwik, Upstox, Slice were the seven fintech additions.

While edtech industry leader Byju’s became a decacorn this year with $18 billion valuation, three of its rivals joined the unicorn club this year -- Eruditus, upGrad and Vedantu. Indian edtech startups have gained greater investor confidence after China mandated all online education companies to register as non-profits.  

Despite regulatory uncertainty, India also saw two crypto unicorns in CoinDCX and CoinSwitch Kuber. The B2B commerce space too saw a fundraising frenzy with Infra. Market, Moglix, ofBusiness and Zetwerk turning unicorns. The funding activity this year was led by Sequoia Capital, Tiger Global, SoftBank Group and Accel.

As it rained unicorns, it has also been the year of startup IPOs. The listing of Zomato, Nykaa, PolicyBazaar and Paytm were a big boost to the startup ecosystem as it showed that India can give an exit path to investors.

China’s crackdown on tech companies has helped India bolster its attractiveness as an emerging market alternative. Early-stage venture capital fund 3one4 Capital predicts that India will be home to more than 150 unicorns by 2025.

The unprecedented funding boom is expected to spill over to the next year as well, helped by India’s rapid adoption of technology and innovative offerings from startups. With another nine days left in the year, it is likely that we may see a few more surprise announcements.