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India Hits Record Number of $1 Bn Startups: 3 Reasons Why Its Unicorns Are Rising!

Did you know that, after China and the United States, India has the highest number of unicorn start-ups in the world?

Did you know India has 14 ‘unicorns’. Wait, what? In case you aren’t aware of what this terminology means, India has 14 start-up companies valued at over $1 billion as of October 2018.

Despite its ups and downs, the Indian start-up ecosystem has witnessed a significant proliferation in the number of unicorns it has produced in the past five years—from 3 in 2014 to 14 in 2018, according to CB Insights, a website that tracks private companies and start-ups.

Following China and the United States—two of the most dominant economies in the world today—India has the highest number of unicorns in the world. The latest Indian start-up to join the famed unicorn club was hotel chain OYO Rooms, which raised $1 billion from Japan’s SoftBank Vision Fund and other investors late in September. After that round of funding, Oyo Rooms has become India’s second most valuable start-up after Paytm. It’s value now hovers around the $5 billion mark.

For representational purposes on;y. (Source: Facebook/OYO Rooms)
For representational purposes on;y. (Source: Facebook/OYO Rooms)

What explains India’s position as one of the hubs of the global start-up economy? Here are three key reasons which may explain why India is home to the third highest number of unicorns in the world:

1) Half a billion online…and counting.

The number of smartphone users in India is expected to reach 337 million by the end of this year. India has over 450 million users of the internet and a proliferation of cheap data plans throughout the country. All of this has allowed firms to attain a scale that major global investors like SoftBank notice faster. And the number of smartphone and internet user in this country is only going to grow further with a population of over 1.2 billion. “A young population, increased spending power, and rapidly growing digital infrastructure are helping India-relevant models to scale quickly,” says Byju Raveendran, CEO of online education company Byju’s, in a conversation with Bloomberg.

2) Addressing much-required needs

These start-ups are also addressing some of the populace’s fundamental requirements–education, logistics and supply chains, and lodging. Speaking to Bloomberg, an analyst with Greyhound Research has claimed that four of five firms that have achieved unicorn status in the past year are operating in these very sectors.

In education, you have Byju’s, which posts videos explaining basic concepts in science or maths for 1.7 million subscribers – who pay approximately Rs 9,500 a year. Adding approximately 130,000 students a month to its app, Byju’s has found a way to impart learning without investing the massive amount of capital and effort required to build a school. They have tripled their annual revenue to $190 million this year according to the business publication.

One of the biggest drawbacks of the Indian economy is its supply-chain bottlenecks (poor logistics) marked by a plethora of middlemen and retailers who profit at the expense of both the consumer and manufacturer. Many start-ups in India are looking to address these concerns with greater efficiency, especially in India’s smaller towns and cities.

Udaan, started by former Flipkart executives, which attained unicorn status last month, links more than 150,000 buyers and sellers of basic electronics, clothing and other such product categories. A special feature of this app is a chat interface that allows sellers and buyers to have real-time conversations across various languages. A simple problem solved by Udaan.

As one of the biggest tourist destinations in the world, and with significant swathes of the economy depending on it, OYO Rooms has driven many hotel owners to step up their game, seek the start up’s seal of approval and find themselves listed on its website.

If a particular hotel is listed by OYO, travellers are guaranteed a certain standard of service. Although there have been complaints in the past about hotels listed on OYO, this five-year-old app has to some extent streamlined this industry and assisted many tourists. Today, it lists approximately 125,000 rooms (5% of India’s total hotel inventory, according to Bloomberg) and is adding somewhere in the range of 12,000 rooms every month.

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3) Many needs, many choices

Finally, these start-ups and their platforms have been successful in offering consumers with multiple choices for a product they want to purchase across a particular segment of the economy. Take insurance, Policybazaar. As the name suggests, it literally allows consumers to shop for insurance from a whole range of service providers in a country which is criminally under-insured (only 3.7% of India have insurance coverage).

Depending on your finances and requirements, Policybazaar seeks to offer a transparent platform on which a customer can purchase insurance coverage. Moreover, it has helped insurance companies as well despite taking a 20% cut on sales, since the demand for insurance now has sky-rocketed. Policybazaar attained unicorn status in the past year.

There are food delivery and payments/retail apps as well like Swiggy and Paytm respectively which also offer consumers a plethora of options as well at competitive prices.

For representational purposes only. (Source: Local Press Co)
For representational purposes only. (Source: Local Press Co)

There are other reasons as well as to why Indian unicorns are on the rise, but these are the three fundamental reasons why they will continue to grow.

Admittedly, it isn’t a bed of roses for Indian start-ups and there are a whole host of issues concerning their business models and seeming inability to turn a profit.

Nonetheless, the future does indeed look bright.

(Edited by Vinayak Hegde)

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