Unicorns in India: How A Startup Becomes A Unicorn? And How to Invest in It

 By Sonali Munda

Introduction and Recap

As discussed, in the previous blog a unicorn startup is when a startup has a valuation of over $1 billion. The startups that exceed the valuation of $10 billion are put into the decacorn club. Bytedance, SpaceX and Epic games are some worldwide examples of the decacorn club, while, India has Byju’s and Swiggy which come under the decacorn club of India. Further, if the startups exceed the valuation of over $100 billion are counted in the hectocorn club. Examples of this club are Apple, Facebook, Microsoft, etc. As of now, no Indian company has made it up to a hectocorn club. The startups in these clubs are also referred to as “Super Unicorns”.

How a startup becomes a unicorn?

In the first series of this blog, I would be discussing how a startup becomes a part of the unicorn club and how to invest in a unicorn company. Well, to be honestly speaking it is quite a challenging task to climb up the ladders to a unicorn club. There is only a 0.00006% chance of becoming a unicorn startup. So to increase the chances of your startup achieving this milestone, I have discussed a few characteristics that a startup needs to have:-

1. Groundbreaking Innovation: Mostly, all the unicorns have brought a revolutionary change in the field they belong to. They have innovated and made themselves according to the customer demands by closely studying their target market and coming up with a common solution for all. For example, Uber changed the way people commuted. Rapido too began providing rides at quite a low price, quick and comfortable. They both have got a feature of tracking the driver and holding a rating system on the driver and the ride experience to enhance their performance. Snapchat, on the other hand, disrupted the usage of social media networks by providing snaps to use for chatting and the facility to disappear the chats after viewing. Xiaomi, is another best example of this point as Xiaomi understood the requirement for cheap smartphones with the same specifications as high-end smartphones.

2. B2C companies: Most unicorn-level successful startups are consumer-focused or consumer-centric. The key feature and their main goal are to provide the consumer the commodities at an affordable price making things easier for them so as to become a part of their daily life. For example, Flipkart provides A-Z goods and services to its consumers from apparel to home appliances and electronics and now even home delivery for groceries. All at very affordable prices. 

3. High-Tech: This is another most common and widely driven feature of unicorns as they are high on tech. 13% of all unicorn startups are FinTech industry as crypto, internet banking, digital lending, and leasing are growing sectors in terms of finance and technology. For an instance, Coinbase and FTX are the cryptocurrency companies that intersect with fintech in a number of ways, like these fintech spaces use blockchain technology for payment processing, money transfer, and secure digital identity management. While 10% are in artificial intelligence (AI) and robots, as AI and robots are the future of the world’s technology. Fractal Analytics is an example of the first AI unicorn and the second company to enter the unicorn club of India in 2022. 

4. Private sectors: With the ease of funds, many private companies are a step ahead to attain the unicorn stage. This is so because their valuation is increased when an established company invests in them. India has 16 of these companies, taking 4% of the overall share. Elon Musk’s SpaceX for example is a privately owned spacecraft manufacturing company that is bagged by the title of a super unicorn. Sequoia Capital and T. Capital. Incorporated by Rowe Price Group and Inc., and Alphabet Inc. are among the established investment firms to invest in SpaceX.   

How to invest in a unicorn startup?

A unicorn startup is already established well enough to have access to venture capital funds (VC). It gets its VC money from accredited sources of investors mostly, along with other sources like friends or family members as seed investors through equity crowdfunding platforms like AngelList or Kickstarter which also operate as mini VC funds. But this funding for a unicorn company lasts until the early stages of its development. Companies after attaining the stage of unicorn shut down their IPO. So, you may require to wait or hope for the unicorn companies to go public, you will then only be able to invest like other stocks. Other ways consist of pooling in crowdfunds from your friends and family at the initial stages or you could participate in funding rounds of a venture capital fund and invest your capital there. Consider investing in a mutual fund or ETF that focuses its fund on private companies that could give you exposure to the unicorn market without the wealth to get direct access and with less risk as you can’t really track their stocks on the public stock exchange list.