The author is Executive Vice President, Wadhwani Catalyst Fund at Wadhwani FoundationMore From The Author >>
The Rise of Unicorns – A Phase or a Sustainable Phenomenon
As we have seen across cycles, some of the most successful companies have been built post any big crisis. In the US, where a large number of unicorns have been created in the past, we have seen an increase in the pace of unicorns addition over time
Funding is one of the core pillars of the success of any startup. While people and execution are equally important, funding is a lifeline. Figuratively, fundraising is an art. The best entrepreneurs are incredible salespeople. They know how to tell an incredible story that will convince investors to join the journey.
As we have seen across cycles, some of the most successful companies have been built post any big crisis. In the US, where a large number of unicorns have been created in the past, we have seen an increase in the pace of unicorns addition over time. Companies that arose from the Global Financial Crisis turned into unicorns by 2014-15. Some popular names that come to mind - Uber, a radio cab major founded in 2009; Nutanix, a cloud computing company founded in 2009; Github, an internet hosting and software development company founded in 2008
In India, we have seen an increasing no of unicorns in H1 2021.
What is causing the rise of unicorns?
· Increased liquidity post a crisis: During any crisis, investing slows down considerably. Inadvertently, venture capitalists are sitting on increased deployable funds as well as the pressure of deployment, leading to an increase in startup funding and unicorn creation post a crisis.
· Increased Buyouts: Some companies find it difficult to survive in markets where there are big boys. They are ready to be acquired, the philosophy being, if we can't beat them, let's join them. Also, the need to build an edge in technology, which cannot be done in-house, has driven M&As
· FOMO/Speculation: Investors tend to overlook higher burn rates and negative cash flowfavouring future growth and returns. The potential upside from investing tends to take precedence over the fundamentals of the business. Innovative and disruptive unicorns have received massive fundraising from VCs, who want to benefit from their eventual success.
· Low-Interest rate environment: Companies can increase CAPEX and R & D for expansion when it becomes cheaper to borrow money; companies can increase CAPEX and R&D for expansion, thereby fostering the growth cycle.
· Cheaper and better resource availability:Post a crisis, there is massive cost rationalization on rents, people, marketing, etc.,which helps businesses become leaner and stronger,making them ready for the next phase of growth as soon as the environment improves. Also, focus on innovation increases leading tothe identification of pivots and new areas of growth
· Consumer-focused technologies:60% of unicorns have an integrated B2C model that solves a particular problem for the consumer. A strong value proposition coupled with disruptive technology is the running driver behind the success of unicorn companies.
What do we need to do to keep the flow of funding?
Massive funding upsurges can lead to bubbles if not supported by an ecosystem of growth.
Learnings from some of the popular unicorns
Meesho: Founded in 2015,it is a social e-commerce platform that is the first unicorn to emerge within this nascent sector. It is an online reseller network for individuals and small businesses.
· Tapped the huge potential of the unorganized retail sector, especially in Tier 2/3 cities
· Targeted the aspirational needs of consumers with increasing disposable income
· Rode on increasing usage of social media platforms such as WhatsApp, Instagram and Facebook. The success of WhatsApp in India was a key driver
· Created a robust logistics platform to manage sales and delivery processes
PharmEasy: Founded in 2014,an online medicine delivery platform.
· Created an excellent tech stack for order taking, inventory management and delivery
· Made it easy for customers to place orders (with mandatorily required prescription) by offering online doctor consultation
· Covid lockdown provided a great growth opp
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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