Before we take a deep dive in the Indian ecosystem of startups, and in that pool… the Unicorn ones, let us understand the terminology first.
A Unicorn is a privately held startup that has been valued at over US$ 1 billion. This particular term was coined and used in 2013 by a venture capitalist – Aileen Lee. Since startups, in general, are more prone to perish than thrive (owing to numerous factors ranging from leadership to finance & competitiveness to teamwork), this term for a mythical animal was chosen to represent a statistical rarity for any startup to survive at length and achieve this market value; and also because Uni stands for number One (1). There are other terms as well, as per the following: –
- Decacorn; for startups valued over US$ 10 billion.
- Hectocorn; for startups valued over US$ 100 billion.
According to TechCrunch, there were 279 Unicorns as of March 2018 like Ant Financial, DiDi, Airbnb, Stripe, and Pinterest.
637 unique startups were founded in 2018. Over US$ 11 billion was invested across 743 deals last year.
2018 saw the making of the largest number of Unicorns in a single year in India.
Majority of them got the assistance (both professional as well as financial) from the dream schemes of the Govt. of India – Startup India & MUDRA (Micro Units Development & Refinance Agency).
Coming to the moot points of discussion –
- How are startups getting converted to Unicorns?
- How can this conversion rate be accelerated?
Let’s deliberate over them separately.
How are startups getting converted to Unicorns?
Although there are many factors responsible for such many conversions, a few primary ones are as follows: –
- The policy to Get Big Fast (GBF): –
This policy is pushed-to-adopt as a “compulsory practice” by investors and venture capitalists. Investors are always return-hungry. They’re an impatient lot that demands more and more along with as soon as possible. So, the startups are subjected to grilling competitiveness, a state/phase in which many perish while only a few of them survive.
Keeping in mind the long-term sustainability of quality, the startups are expected to expand at a high rate through multiple rounds of large funding; thereby gaining initial advantage on increasing market share and pushing away competitors.
- Acquisitions by big fishes: –
The big fishes in the market, sharks rather, are always on a hunt pursuit for ground-gaining startups. Many startups have reached to become early Unicorns after being acquisitioned by big enterprises like Google, Apple, Microsoft, Amazon, etc.
It’s surprising that many startups are started to get acquisition!
Instead of focusing on capital expenditures and internal investment projects, such startups work towards gaining the attention of the market giants.
- Use of technological advancements: –
Startups of today are making every attempt to make use of all / majority of the technological advancements such as Chatbots, Artificial Intelligence, Virtual / Augmented Reality, etc. which are a few of them. To obtain the Unicorn status, the startups are taking multiple advantages of the, literally, a flood of new technology.
The ever-expanding and ever-updating characteristics of these technologies, along with the introduction & dominance of social media in the fields of advertising and marketing, are enabling the business ventures to gain huge economies of scale.
- Valuation strategies: –
Valuations are being utilized by startups to become Unicorns and Decacorns and the employed strategies are unique as compared to the established business identities. For older businesses, the market valuation criterion is solely based on the past performances of the company year-over-year. But for the startups, the criterion is growth opportunities and long-term development in the potential market.
Another strategy is acquisition-based; where a bigger company buys a smaller one and gives it the required valuation to be a Unicorn. The recent examples have been the buyouts of Dollar Shave Club and Instagram by Unilever and Facebook respectively. Stats suggest that the to-be Unicorns are overvalued by an average of 48%.
Now, some discussion for expanding this “Be a Unicorn” fever.
How can this conversion rate be accelerated?
There are answers; simple yet multifold.
Let us explore!
- First, adopt the popular methods as they are… the reasons that are responsible for turning startups in Unicorns.
- Second, innovate within those methods. Adopt a scientific approach towards your existing strategy of expanding market valuation and market share.
- Third, practice and execute those methods that either get you in the limelight or eyes of big companies or bigger investors.
- Always keep an eye on your competitors; think several steps ahead of them.
- Take advantage of every opportunity; big or small, don’t let anything slip by.
- Keep yourself updated and upgraded. You won’t know when & how a market giant will compare your business with your competitors and finding yours sluggish gives you a thumbs-down.
- Don’t go on a wild goose chase for IPOs (Initial Public Offerings)… getting listed in share capital market should not be the priority. Because IPOs run the risk of company devaluation if your startup is seen as less worthy than its investors. Another factor to avoid IPOs is market regulations.
Therefore, the ecosystem for startups in India is thriving and gaining more and more popularity with each passing phase. More startups are now getting converted to Unicorns and getting subsequent promotions in multiplying their market valuations (over time).
Indian Startups are acting like investment magnets. The budding entrepreneurs are required to find the silver linings hiding in the stormy environment of cut-throat market competition.
Help & assistance is always around; find it… take advantage of it… grow and expand!
Well written & mainly the experience which is pointed out would definitely give a jump & long sustainability to new venture.
Keep posting your experience & I am sure would be motivating to new start up.
Right Vikas 🙂 Will do for sure
A very good and informative read, Kalyan.