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Start-up unicorns: India and China top the one billion US dollar list in Asia

Mensa Brands has become a Unicorn in record time
Mensa Brands has become a Unicorn in record time

China and India have become the top contenders out of Asia in the global startup ecosystem. While both the largest economies of the world still lag behind the US, they have rising status in creating so-called start-up unicorns (companies with or more than $1 bn valuations).

Calling 2021 ‘the most successful year for startups’, the latest list of Global Unicorn Index, compiled by Shanghai’s Hurun Research Institute showed a total of 1,058 unicorn companies worldwide valued at $3.7 tn, registering a massive growth in 2021 from 472 unicorns in 2020.

While the US ranked first with 487 unicorns in total, China was home to the second-largest number of unicorns, accounting for 301 of the total. The US added 254 unicorns to the list, and China added around 74 new unicorns, as of the end of November. India, in the meanwhile, ranked third after adding 33 companies to the list, taking the total to 54.

Interestingly, China saw a slower pace of growth in its unicorn ecosystem this year and fell further behind the US in the number of startups. While India saw an exceptional rise in the number of start-up unicorns in 2021.

According to Tracxn data, around 211 venture capital firms made debut investments in India in 2021, compared to 64 in 2020, NikkieAsia reported in November. The report added that ‘China’s regulatory crackdown on its tech sector has dented its appeal as the first-choice investment destination for global venture capital in Asia‘.

China: less welcoming for startups in 2021

According to Hurun Research Institute’s Global 500 Report 2021, the number of Chinese unicorns in the top 500 companies list fell to 47 from 51 last year. ByteDance took the place of the world’s largest unicorn with a valuation of $360.7 bn, overtaking Ant Group that took the second spot with a valuation of $156 bn. The third Chinese company that entered the top 10 list was another Alibaba’s unit Cainiao, at a $34 bn valuation.

Another latest update from the QUICK-FactSet database showed that Tencent Holdings and Alibaba Group Holding dropped out of the global top 10 companies in market capitalization, leaving no Chinese companies on the list. In terms of venture capital funding, China drew $45 bn in venture funding during the first nine months of 2021 compared with $52 bn for all of 2020, according to data by Atomico.

According to market analysts, Xi Jinping’s common prosperity-driven corporate crackdown is stirring unease in investment sentiments. Over the past year, Chinese regulators have reined months-long tough regulations in some of the country’s most successful and dominant companies, to bring greater state control over its private sector. The government has launched probes, stalled public offerings, as well as installed a series of regulatory policies pushing for free, fair and law-regulated market competition.

According to Eastspring investments, China’s economy is in the midst of recovering from the impact of a number of regulatory crackdowns on selected sectors including the internet platforms, private education and real estate.

Beijing’s widening crackdown on anti-competitive practices has now erased hundreds of billions of dollars in market value for tech behemoths like Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Didi Global Inc. Despite this, the technology-led trade tensions between US-China relations have become increasingly tense, adding more hurdles for Chinese start-ups to list overseas. Furthermore, Washington’s own attempts to keep Chinese companies away, which has made some offshore listings close to impossible.

Another looming headwind for growth in startup numbers comes from new curbs due to rising Covid-19 cases, pressured job sector as a well weak set of key economic indicators, that are dampening the economic growth outlook for 2022.

The rise of the Indian start-up unicorns

On the other side, 2021 turned out to be a golden year for the Indian startup ecosystem. India is one of the top five start-up ecosystems in the world, despite being way behind in the unicorn numbers from US and China. From a single startup entering the unicorn club in 2011, 2012 and 2013, India started seeing the rise of unicorns in 2018, when 10 startups entered the club and the boom is growing exponentially every year.

India has made start-up unicorns at approximately four per month this year as against seven in 2020 and six in 2019. Within the first four months itself, 2021 broke last year’s record of 11 unicorns.

The loss in China’s sheen is also proving beneficial for India, where venture capital inflow was at an all-time high of $19.5 bn for the first nine months to September, according to data by CB Insights. Meanwhile, total venture investment in China during the same period totalled $67.4 bn. During the July-September quarter, venture investments in India raised $9.9 bn, against $25.5 bn in China.

Recent analysis suggests that new companies reached billion-dollar valuations in a fraction of time compared to earlier known trendsetters. In 2021, Mensa Brands was the fastest startup to achieve unicorn status in less than 6 months period. It was followed by AI-driven personalised content provider Glance (18 months), eCommerce platform Paytm Mall (19 months), B2B e-commerce platform Udaan (22 months), Ola Electric (25 months), the professional networking platform Apna (28 months).

India’s positive macro-economic factors like government-led digital revolution, successful IPO launches, favourable demographics and conducive regulatory environment have provided multifold growth opportunities for the startup ecosystem to thrive.

A September Goldman Sachs report stated that the number of ‘unicorns’ has surged in India in recent years, while the money raised through IPOs this year has reached $10bn, surpassing the issuance in the past 3 years. As per GS analysts, the largest unicorns are mostly from new economy sectors, with half of them from Fintech, E-commerce, SaaS.

“‘There are an estimated 67 unlisted startups that have achieved unicorn status in India with 27 of them hitting the $1bn valuation mark this year alone”.

A December report by Bain & Co stated that India has seen a rapid increase in the number of SaaS unicorns from 1 in 2018 to 13 in 2021. As per the consulting firm, investments in Indian SaaS companies rose 170 per cent to $4.5 bn in 2021 from last year. Another November CLSA report mentioned that India is evolving into one of the world’s largest fintech markets and has 14 fintech unicorns valued at $50bn.