Exploring the real impact of Indian Unicorns on capital markets and diversity.
India has produced its 100th Unicorn. This milestone was reached when Open, a neo banking platform for small and medium enterprises, raised $50 million at a valuation of $1 Billion (Around Rs 7500 Crore).
According to Inc42.com, Indian start-ups raised more than $42 billion across 1,583 deals in 2021 — which was more than the total funding raised by them in the last three years combined. In terms of the number of deals, FinTech, E-commerce and SaaS start-ups came first, second and third places in that order.
Though these Unicorns have been aggressive in raising funds at high valuations, the profitability among them is very low. According to data analytics firm Tracxn Technologies only 23 of the 100 Unicorns, have managed to achieve profitability for a financial year.
According to T.V. Mohandas Pai, a prominent investor asserts that:
“If the valuation is not realised, it is between the two parties and has nothing to do with public money.”
It is fine, till it is between the promoter and the angel investor or venture capitalist. The issue arises when this valuation is realised from the retail investors through an IPO.
These start-ups have raised over $80 billion from investors to date, creating a total market value of more than $300 billion. This data is significant because some Unicorns that have listed on stock exchanges last year have confronted an investor backlash for not managing to achieve company-level profitability. For example, shares of Paytm, Policy bazaar and Zomato have fallen below their initial public offering prices.
Analysts feel that in the entire valuation game the retail investors are placed in a rudderless boat while the angel and other early-stage investors are royally put in a cruise.
The other area mentioned in the start-up eco-system is the contribution to the economy by job creation. According to NASSCOM, Indian start-ups have created 6.6 lakh jobs directly and enabled 34 lakh indirect jobs in 2021. But the reality is majority jobs are low-skilled, less paid, have poor working conditions, etc.
As part of the start-up eco-system, I strongly feel that while we proudly tout the fact of India being the third-largest start-up ecosystem in the world, after US and China, we must also review the real impact of start-ups, particularly, these Unicorns on job growth and capital markets.