The Unicorn Stampede

Synopsis: It would be wise for investors to take a deep breath before investing in India to make sure that the blessing of unicorns does not end up saddling India with a curse.

Introduction

Unicorns are Start-ups with a billion dollar-plus valuations. There is Unicorn stampede in India and on the other hand there is fewer unicorn sightings in China which is ordinarily the biggest unicorn habitat outside the US.

Why unicorns are shifting base from China?

Crackdown: China’s tech industry contributed over 38% to the country’s GDP last year and was key to managing both Covid and the economy. Beijing has decided to crack down on the industry.

The crackdown began with the abrupt suspension of the much-anticipated initial public offering (IPO) of Ant Group, while founder, Jack Ma, the very face of Chinese tech worldwide, mysteriously went underground.

Industry-wide changes in China: The state’s shadow extends well beyond restricting capital markets access and tightening regulations. Weekends and holiday tutoring by private tutors are off-limits. Video games, on the other hand, can only be played on Fridays and weekends.

Why India is experiencing unicorn stampede?

Tiger Global Management: it topped the list in terms of greatest exposure to the risks created by China’s tech crackdown. Hence, Tiger’s interest in India has spiked which attracted attention of other investors. Tiger’s investment in Innovaceer, for example, has given India its first health-tech unicorn.

Venture deals increasing: China may have four times the number of unicorns as India, but this year for the first time since 2013, the value of venture deals in India surpassed that of China.

India is the world’s second-largest digital market: The use of the United Payment Interface has made digital payments easier in a society that was so tied to cash.

Opportune time: Many startups are in a hurry to capitalise on the boom with many investors looking to capitalise them. For example, ShareChat can get you into Tier 2 and Tier 3 cities over a vernacular social media platform.

Why this shifting may not be good for India?

Self-reinforcing cycle: The early investors draw in others who fear they are missing out, and more investors rush in, perpetuating the cycle. The cascading tranches of money over-capitalise startups by giving more money than what’s needed to get to necessary milestones.

Over-valuation: Each investor may over-value a company, far exceeding what is justifiable based on market fundamentals.

Source: This post is based on the article “The Unicorn Stampede” published in Indian Express on 24th Sep 2021.