31 and counting: Happy hour for unicorn club

India has produced more than three unicorns a month, on average, this year with the tally reaching 31 already. At this pace, 2021 could end with around 40 unicorns.

The great unicorn rush, that started with Digit Insurance this year, has covered diverse sectors from fintech to e-shopping and even cloud kitchen. On Thursday, Rebel Foods, which operates a network of cloud kitchen brands such as Fasoos and Behrouz Biryani, became the first to enter the unicorn club from the niche category that found its place during the pandemic.

What triggered the unicorn rush during 2021 really? While work-from-home during Covid pushed the growth of digital businesses in India, the phenomenon also resulted in a long unicorn list. Industry experts and investors said three factors — thriving digital payments ecosystem, larger smartphone user base, and digitalfirst business models — have come together to attract investors.

Anup Jain, managing partner, Orios Venture Partners, which has investments in unicorns such as Pharmeasy, said: “Tech companies, which have become household brands, are contributing to the unicorn boom in India, as smartphone penetration and digitisation of commerce in every aspect of life has multiplied during the pandemic.”

In fact, growth in digital payment is reflected in the sector that has contributed the most to the unicorn list. From 2011, when India reported its first unicorn—inmobi--till the end of 2020, India had six unicorns from the fintech list. This year has already seen seven fintechs joining the unicorn list. Besides fintech, Saas (software as a service), e-commerce grocery and marketplace players are contributing the most to the unicorn universe. As for investors, Tiger Global and Sequoia Capital continued to rule the ecosystem.

The country has around 640 million internet users. Of this, 550 million are smartphone users. Additionally, digital payment has seen a growth of 30.19 per cent for the fiscal year ended March 31, 2021. Also, at the end of September 30, 2021, the UPI (unified payments interface) ecosystem saw 3.5 billion transactions amounting to ~6.54 trillion worth of transactions.

Ankur Bansal, co-founder and director, Blacksoil, believes that fintech, Saas & e-commerce will continue to grab the bulk of investments. He expects many more unicorns in the space.

With the next 500 million internet users coming from the smaller cities, the growth of digital business is just going to grow from here and that is what investors are trying to be a part of, analysts pointed out.

“A lot of these deals are being done on the back of not just the fundamental financial performance of the business but also potential market opportunity and ability of these companies to capture the same in a hyper growth fashion. Global venture growth backed by a huge appetite in capital markets is adding a surge to the number of unicorns out of India. As a result, follow up rounds are happening very quickly across all stages and sectors positively impacted by Covid,” said Bansal.

Venture capital investors and experts expect India to have 150 unicorns by 2025. Jain of Orios Venture Partners explained why. “We see that the companies going to IPOS compare very favourably on revenue/ebitda multiples with their global counterparts as well as legacy companies that are non-tech in the same space."

According to Venture Intelligence data, the fintech sector has seen a record $4.8 billion across 143 deals from January to September.