The Unicorn Race- Does it even matter?

February 20, 2023

Every year, a Global List of Unicorns is published resulting in much heart burn in India. This year too, The Hurun institute (they are based in China- had to look up) published a report of top Unicorns and promptly started a debate in India.

Unicorn as we know are unlisted companies valued at USD 1 bn or more. India has 21 Unicorns and it is at fourth place behind US (238), China (227), UK (24) and just ahead of South Korea.

Why India has so few Unicorns when we are the Masters of Tech World- Indians are CEOs at Google and Microsoft. Indian Tech companies such as TCS, Infosys, HCL have been at the forefront of tech transformation. We never tire talking of start-ups and innovation and young talent.

Then why we are so far behind in the race for Unicorns?

Unicorns are basically about potential future revenue (and hopefully profits- but leave that to stock markets) you expect to generate from selling your products and services.

India is simply too poor to get the kind of sales you need to make you a Unicorn. So- very few companies make it. Indian tech companies- Infosys etc.- earn by serving rich countries and over 90% of their revenue comes from exports and not local sales.

Let us look at it the other way.

What is your average order size on Swiggy? Rs. 300? Rs. 500? Rs. 1000? That is about USD 5 to 12. How much do you pay as a minimum for Uber? Rs. 75 or Rs. 100? That is just USD 1.5.

How many meals and trips one will need to reach a revenue of say USD 200 mn or Rs. 1500 cr. - you can take out your calculators.

Now- suppose you were 10 times richer- just like that. You will order from Swiggy but from Taj or Oberoi every day !! Your order size goes up to average of Rs. 2000 to Rs. 5000 - or USD 30 to 60. What if you were 50 time richer? What type of bag will you now order on Amazon- Baggit or Louis Vuitton?

Example above is to compare India's per capita income of USD 1900 with China- USD 10,000 and USA- USD 60,000. We are just too poor.

Don\'t go by display of wealth we see in our big cities- luxury cars, million dollar apartments, international schools. Just to put it in perspective- the GDP of just New York City Metro area is USD 1.4 trillion as compared to India's total GDP of USD 3 trillion.

BUT- Does it really matter how many Unicorn we have?

If you are a Private Equity and Venture Capitalist player- valuation is ALL that matters and understandably so.

But as a country - what matters MORE is whether you are changing lives of consumers and offer a product or a service that they can afford to pay for. Comparing revenues from rich nations with that of India is pointless.

On that front we are doing very well. Almost all of our daily activities have now gone digital. Bill payments, ordering food, getting a cab, buying insurance, buying grocery, online shopping, fund transfer and now online education- our lives are completely changed by adoption of new technology.

Unicorns have their benefits- it attracts a large number of young people to try their luck and aspire to become one. Even if most may not make it- they have given rise to a thriving ecosystem of start-ups, investors, mergers etc.

Is the government doing enough? Short of creating a China like firewall- there is not much a government can and should do. Leave the ecosystem alone. Ensure level playing field. Keep taxes moderate. Make laws simpler. But this is anyways needed for ALL of the economy- nothing specific to Unicorns.

May be it is time to coin a new term- Indicorns !! Indian start-ups achieving domestic sales of Rs. 1000 cr. with at least 10% net profit margin.

Let THAT race begin !!