New Delhi: India’s start-up ecosystem has hit a bump with the number of unicorns in the country declining for the first time since 2017, and the sector experiencing an investment slowdown, according to a report.
The ‘Global Unicorn Index 2024’ released by research group Hurun Tuesday found that India had 67 unicorns as of 2023, one lower than in 2022. This, at a time when the government still maintains that the country has more than 100 unicorns.
India ranks third in the world in terms of the number of unicorns, but remains far behind the US, which has 703, having added 37 in 2023, and China with 340 unicorns, adding 24 in the last year. The report pegs the total number of unicorns in the world at 1,453 for 2023.
Significantly, the study pointed out that while the number of unicorns in India had fallen, Indian entrepreneurs founded as many as 109 unicorns outside the country.
A unicorn startup is a privately held company, without any listing on public exchanges, valued at $1 billion or more and supported with venture capital. When a company’s valuation falls below $1 billion, it no longer qualifies as a unicorn.
During his address at the ‘Startup Mahakumbh’ in March this year, Prime Minister Narendra Modi painted a robust picture of India’s start-up ecosystem, saying the number of registered start-ups in India had increased from “hardly 100” in 2014 to around 1.25 lakh currently, which directly engages nearly 1.2 million young people.
“We have more than 110 unicorns, and our start-ups have filed nearly 12,000 patents,” Modi said.
It’s not just him. Several other ministers in the central government have also made similar claims.
Union Minister of Petroleum & Natural Gas and Housing & Urban Affairs Hardeep Singh Puri, too, said in October 2023 that India had over 100 unicorns, with a combined valuation of $347 billion. Similarly, Union Minister of Railways and Electronics and Information Technology Ashwini Vaishnaw in August 2023 also put the number at 108 with a combined valuation of $450 billion.
During another start-up conclave in December 2023, Union Minister of State for Skill Development & Entrepreneurship and Electronics & IT, Rajeev Chandrasekhar said India can produce 10,000 unicorns in the coming years.
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What is behind the decline?
Anas Rahman Junaid, Founder and Chief Researcher at Hurun India, blamed lack of investment and concentration of Indian founders in offshore unicorns.
“India’s start-up ecosystem has slowed, with the number of unicorns down for the first time since the launch of our list,” Junaid noted. “This is primarily fuelled by lack of investments in start-ups despite the recent stock market highs.”
“Another factor is that founders from India produced more offshore unicorns than any other country, founding 109 unicorns outside of India compared to 67 in India,” he added.
He further added that India lagged behind top performing countries like the US and China in spearheading AI-driven growth.
“While it’s encouraging to see the rise of Krutrim, India’s first AI unicorn, there remains a substantial gap when compared to the United States and China, which lead with 60 and 37 AI unicorns, respectively,” Junaid said.
He pointed out the top three sectors contributing to new unicorns in China were new energy, semiconductors and AI sectors. In addition, the aerospace or space tech sector was a critical frontier where India lacked unicorns, and was an area where both the US and China had advanced with 10 unicorns each.
“This situation presents a crucial juncture for India,” Junaid added. “Failure to seize this moment risks India falling further behind the US and China in AI, new energy, semiconductors, and potentially aerospace — a sector likely to rely on domestic innovation due to security considerations.”
According to another research by PrivateCircles in January 2024, the start-up funding in India fell over 62 percent in 2023 to Rs 66,908 crore as compared to Rs 1,80,000 crore in 2022, making it the lowest since 2018.
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An earlier report by ThePrint talked about fluctuations in the start-up ecosystem, with the number of unicorns falling to 84 by the end of 2022. At the time, some of the reasons for this included mergers and acquisitions that reduced the total number of companies with high valuations, and a trend of more companies listing themselves on stock exchanges, which disqualifies them from unicorn status.
According to the Hurun report, Indian ed-tech platform Byju’s was the biggest drop-out from the list of unicorns, having seen its valuation fall from $22 billion in 2022 to less than $1 billion in 2023.
This happened after the company faced various financial obligations, including a debt of around Rs 2,000 crore, Rs 200 crore in TDS payments for salaries and vendors, a customer refund of approximately Rs 500 crore, and vendor payments totaling Rs 1,000 crore.
Where are India’s unicorns and what are they doing?
According to government data, Bengaluru is among the world’s top-five fastest-growing start-up hubs, and accounts for 27 percent of India’s start-ups.
The Hurun report, too, said that “the most active city for unicorns outside of the US and China was London, followed by Bengaluru, Paris and Berlin”.
Out of India’s 67 unicorns, as many as 32 were located in Bengaluru in 2023, according to the report. Mumbai was home to 14 unicorns.
Most of the unicorns in India are in fintech, e-commerce and software as a Service (SaaS) sectors.
India also emerged as one of the top countries (ranked third) in terms of concentrations of “cheetahs” and “gazelles”. Cheetahs are start-ups founded in the 2000s, not listed on stock exchanges and likely to become unicorns in the next five years, while gazelles are those likely to become unicorns in three years.
India is home to 5 percent of the world’s total number of cheetahs, and 7 percent of the total number of gazelles.
(Edited by Tikli Basu)
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