The emergence of 27 new Indian unicorns in a single year proved that 2021 is one of the best for the Indian startup ecosystem.
The current year has proven to be one of the best years for the Indian startups ecosystem. The startup environment has witnessed the highest half-yearly funding. It has been led by companies offering B2B products, fin-tech and ed-tech companies. The year saw 27 new Indian unicorns emerge, the highest ever in a single year.
B2B Is The New B2C
The rise of the B2B unicorns in recent years points to a change in the trend. Initially, most Indian unicorns were consumer-facing companies such as Ola, Zomato, Paytm, Quickr, Flipkart, Snapdeal among others. From 2011 to 2018, a large number of startups were focused on the B2C segment – only four out of 18 unicorns created during this period catered to the B2B or enterprise software segments. In contrast, out of the 41 unicorns since 2019, 19 cater to the B2B or enterprise software segments. The change in this trend indicates that investor focus might be shifting from B2C to B2B companies.
New B2B startups are focusing on smaller enterprises. Companies like Udaan, Zetwerk, Khatabook and others are focusing on bringing small and medium enterprises on board and solving their problems.
Udaan, for instance, wants to cut out the middleman from the supply chain and provide a platform for small traders to buy directly from manufacturers. It also provides other services like lending for SMEs (small and medium enterprises) on the platform. The strategy has irked both distributors and several fast moving consumer goods companies that have stopped selling goods on the company’s platform. Udaan is the fastest company to reach the unicorn status.
Even the fragmented kirana store segment is being digitised with companies like Khatabook that offer solutions for store owners to keep digital records through their phones. The app also allows shop owners to request payments from customers. Khatabook saw its valuations reach $600 million within three years of being acquired by ADJ Utility Apps Private Limited.
Another start-up, OfBusiness, allows SMEs to procure raw materials and offers them credit for the transactions. The company was founded in 2015, and has reached unicorn status within five years.
Betting On Bharat
Investors are clearly interested in the B2B space with a focus on India’s digitisation story. The B2B business also requires lower capital in terms of advertising unlike consumer-facing businesses. Some B2B businesses are also venturing into smaller towns and rural India, which has so far remained largely untapped.
While some major consumer-facing startups have stuck to catering to Tier-1 and Tier-2 cities, several B2B startups cater to smaller towns. For instance, Khatabook saw 10 million downloads within a year of its launch, a major part of which came from Tier-2 and Tier-3 cities.
SMEs have been heavily dependent on their contacts, distributors and inefficient markets to conduct their operations. But these startups have helped democratise operations and provide easy operations right from raw material supply to deliveries. SMEs that previously had limited opportunities can now grow their businesses at a faster pace.
The Indian government’s production linked incentive schemes (PLI) to grow the manufacturing base, combined with startups that are reducing inefficiency in various sectors, can augment the supply side.
Some Sectors Remain Underrepresented
But curiously, some sectors are underrepresented in the unicorn space. For instance, Innovaccer is the only unicorn in the healthcare space. Kiran Majumdar Shaw of Biocon put it down to a lack of understanding and knowledge of science among Indian venture capitalists. On the other hand, countries like the US have seen several small biotech and pharmaceutical start-ups reach billion dollar valuations or get acquired by major companies. According to Shaw, venture capitalists prefer easy-to-understand and predictable businesses.
Some of these startups also face competition from companies like Reliance Industries that are entering the B2B segment. Its subsidiary Reliance Retail Ventures acquired JustDial. JustDial has been working on developing a presence in the B2B segment. Jio has been using its digital reach to enter the payments, entertainment, e-commerce and B2B segments. It has already struck a deal with Hindustan Unilever Limited to act as an intermediary between HUL and its retail stores.
Funding aimed for Chinese startups might move to India after the Chinese government’s crackdown on India, further boosting the startup ecosystem. Yet, most of these startups, including unicorns, have been struggling to monetise their products and cover their costs. It remains to be seen whether these startups can keep up with the hype and the valuations.
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