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Context

India has the second-largest number of unicorns and is only behind the United States (US). It is now home to 71 unicorns.  

World’s biggest investors, including SoftBank, Tiger Global and Falcon Edge, are pouring money into Indian start-ups, churning out unicorns at a record speed and valuations.

Unicorns: A Backgrounder

A unicorn is a start-up with a valuation of at least $1 billion.

• The term was first coined by Aileen Lee, founder of Cowboy ventures when she referred to the 39 start-ups that had a valuation of over $1 billion as unicorns.
• The term initially was used to lay emphasis on the rarity of such start-ups.

Some of the successful Indian unicorns:

• Lenskart
• Cred
• Meesho
• PharmEasy
• Licious
• Grofers etc.

Unicorn boost in India

• The growth of Unicorns in India has been phenomenal in the past two years.
• From 17 Unicorns in 2018 the number went up to 38 in 2020 and it’s 71 and counting in 2021.
• Many of these unicorns, which have cumulatively raised more than 9 billion dollars till date, have also seen a surge in valuations.

Features of a unicorn Start-up

To be a unicorn is no cakewalk and each unicorn today has its own story with a list of features that worked in its favour.

The few pointers that are commonly seen across all the unicorns is as under:

• Disruptive innovation: Mostly, all the unicorns have brought a disruption in the field they belong to. Uber, for example, changed the way people commuted.  
• ‘Firsts’: It is seen that unicorns are mostly the starters in their industry. They change the way people do things and gradually create a necessity for themselves.
• High on tech: Another common trend across unicorns is that their business model runs on tech. Uber got their model accepted by crafting a friendly app.
• Consumer-focused: Often, theirgoal is to simplify and make things easy for consumers and be a part of their day-to-day life.
• Affordability: Keeping things affordable is another key highlight of these startups. Spotify, for example, made listening to music easier to the world. 
• Privately owned: Most of the unicorns are privately owned which gets their valuation bigger when an established company invests in it. 
• *Mostly software based: A recent report suggests that 87% of the unicorns’ products are software, 7% are hardware and the rest 6% are other products & services.

Entrepreneurship today is ‘survival-driven’ self-employment, formed out of necessity, as well as opportunity motivated, largely because poverty and lack of formal employment opportunities rear their ugly head in striving economies.

Reasons for sudden success

• COVID pandemic: The pandemic accelerated adoption of digital services by consumers helping start-ups and new-age ventures that typically build tech-focused businesses delivering an array of offerings to customers.
• Boost in online services: Many Indians who had traditionally been subscribers of brick-and-mortar businesses moved online and explored a host of services ranging from food delivery and edu-tech to e-grocery.
• Work-from-home culture: This added significant numbers to start-ups’ user base and expedited their business expansion plans and attracting investors.

Inherent challenges to Start-ups in India

• Financial scarcity: Availability of finance is critical for the startups and is always a problem to get sufficient amounts.
• Lack of Infrastructure: There is a lack of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks etc.
• Regulatory bottlenecks: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge.
• Compliance hurdles: For example, earlier Angel tax, which stands removed no, falls under corruption and bureaucratic inefficiencies.
• Low success rate: Several startups fail due to shifting away the focus on the fundamentals of business grows.
• Lack of an Innovative Business Model: To be successful a start-up must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere.  
• Non-competitive Indian Markets: Too many startups serving too few consumers are saturating the Indian market.  Most startups serve the fraction of Indians who live in urban India.
• Digital divide: The majority of Indians who live in rural areas and small towns remain untouched by most startups.

Various initiatives by the Govt.

There are numerous government initiatives to assist start-ups:

• MUDRA Scheme: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
• SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
• E-Biz Portal: It is India’s first government to business portal that integrates 14 regulatory permissions and licenses at one source.
• Credit Guarantee Fund: launched by the GoI to make available collateral-free credit to the micro and small enterprise sector.  
• Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under SIDBI for extending support to Start-ups.
• Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.

Roadmap for the future success of start-ups

Start-ups can judiciously take cues from unicorns in understanding the ecosystem and building a business model that adds value while being sustainable.

• New-age startups should devise a customer-centric business model.
• Through proper branding and strategy, they should make sure that this value proposition reaches the end-user.
• What brings startups closer to success is the execution and customer acquisition strategy, where all the action occurs.  
• Notably, technology (rather deep-technology) has played a key role in the making of pioneer business models.

Attracting venture capitalists

• VCs are actively looking for investment opportunities in early-stage startups.
• They possess the selection ability to effectively screen startups having a higher potential to succeed.
• VCs primarily look for a mindset alignment with promoters and companies where they, as investors, can add value by leveraging their industry experience, expertise, network and reputation.

Conclusion

• The current economic scenario in India is in expansion mode.  Indian Startups are now spread across the length and breadth of the entire country.
• The word ‘unicorn’ has come a long way from just being a mythological creature to a regular feature in business and finance discussions.
• Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives.
• The Indian government’s policies like Make in India, Digital India, Atmanirbhar etc. shows the enthusiasm to arrest this talent.