We had a birthing moment of significance this last week gone by. India delivered its 100th unicorn. Open, a neo-banking platform for small and medium enterprises, that raised its latest tranche of funding of $50 million, became the 100th company with a $1 billion valuation that signifies a unicorn. A moment to celebrate.
If one is to total up the valuation of our 100 unicorns, minted from day zero, which in many ways was in September 2011 with the birth of India’s first, InMobi, our unicorns hold a total value of $332.7 billion today. And this valuation, in the space we are discussing, is deepening by the minute. Money in this category grows by the minute. On a normal day.
The world today has a total of 1,000 unicorns. Our 100th therefore represents a 10% share in the unicorn market for now. In terms of numbers alone of course. In terms of value, however, it’s a different story.
The new contest in our lives today is the unicorn race. What’s the next milestone in this race then? Possibly every additional 100 we add, and most possibly the day we reach a total valuation of $1,000 billion for our unicorns. The unicorn is a number and a value. Both count. The basic effort of every unicorn is to deepen its value. Every value deepening represents relevance and sustainability in a world that is fast-changing in its clamour for products and services that are fast going digital.
And what’s the dread factor in this race, if any? The prospect of a de-unicornisation possibly. And is that possible at all? We don’t seem to consider it a possibility at all for now. Not with the current frenzy. The point is clear. There are a few ideas and sectors being chased, and the clear goalpost is valuation. After all, the goal of all investment is to get better and better returns. At worst then, we will have a spate of unicorns marrying one another by volition or force. Expect this for sure.
India, at this point of writing, has a total of 69,640 start-ups. A fair number of these have built for themselves an investor backbone. Others are searching it out desperately. Every start-up is really a solution. A solution that addresses a latent problem. And each of these solve a myriad of problems. Start-ups today address as many as 65 sectors of interest in India. While the largest attention seems to be in the IT Services sector (13%), healthcare (9%), education (7%), commercial services (5%), agriculture (5%) and F&B services (5%) bring up the big chunks of sector-wise interest. Add to it niche attention across some 59 other categories and the story is complete. The start-up is a solution. A solution that aims to pluck both the low-hanging fruit of opportunity right now, and aspires to reach the higher hanging fruit later than sooner.
A quick look at the geographical dispersion of our unicorns does indicate that to date it has been a big-city game. A game that attracts the best investors from the big-city ecosystem. What gets seen gets bought into. Well at least in the early days, it seems to be that way.
As India digs deeper into its corpus of 69,000-plus start-ups, it just might be time to decentralise the hunt and go wide and deep. Into the hinterland that is India. The best start-up ideas can come from anywhere. And they do. The more nifty investor has already begun this hunt. There is a kind of inflationary pressure out here. A lot of good money is chasing very few good ideas. And sectors.
The moot question then. What then of profit? Does profit really count at all in the unicorn race? Interestingly a Tracxn Technologies number seems to point out the core fact that only 23 of our 100 unicorns have turned a profit for a full year of operations. Is that a point to worry about at all? Maybe not. In the case of many of our unicorns, it’s just too early for profit. A unicorn can happen in just six months flat, as it can take all of two decades. And unicorns that happen early in their life stages as companies are really in the test-mode. Many have found money before their feet in the market even. And this is the truth to address in sorting out the solidity of our future unicorns. Our unicorns today have raised as much as $86 billion and have shown a market value of $332.7 billion for now.
The unicorn is therefore not a business as yet. Not a business in which you invest in. It is still an idea. It is not a horse as yet. It is a horse with a shiny pointed horn. The promise of a business idea that may just change the world around it. And into this promise flows every investment and every valuation blip. It is important to remember that there is profit and profitability at one end, and then there is the path to profitability that an investor is able to see clearly through his uniquely driven and uniquely blessed investors’ glasses. In many ways, the unicorn of today is not at all about PE multiples and that much-touted-about EBITDA (earnings before interest, tax, depreciation and amortisation). It’s the idea, silly! And if the idea is really different, really disruptive and really efficient, a business spine with all the attendant traditional metrics a good business demands will automatically fall around it seamlessly and in no time.
Even as India throws up more and more unicorns from its large pool of start-ups, at the investor end, there is a kind of portfolio management approach that is necessary. Every investment comes in at a different stage in the life cycle of the idea that becomes a corporate entity eventually. Investors of the day will need to treat every investment in their portfolio with a difference. An early-stage unicorn will need to be treated differently with more of kid gloves when it comes to the contentious issue of cash-burn and unit-sale proceeds. An older-stage company will need to be treated with a tougher view that says profit is the ultimate proof of a good and sustainable business model. Carrots for some and sticks for others. That’s the name of the game of the future of investing, if not already the present.
To the Indian ‘ekashringa’ (unicorn) then! Cheers!
Harish Bijoor, Brand Guru & Founder, Harish Bijoor Consults