Indian Unicorn Startups – Led by Chinese Funding

What is an Unicorn startup?

First things first, for those of you who have heard the term “unicorn startups” but don’t know its meaning, here it is – Unicorns are privately held startup companies which are valued at $1 billion (₹7,500 crore) or more. The term “unicorn” was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures.

Indian Unicorns

India is the world’s third largest startup market. As of Mar’20, there are ~28 Indian unicorn startups just behind China (125) and US (124). Looking at the pace at which the startup scene is India is growing and attracting new capital, this figure is estimated to go above 100 by 2025.

List of Indian Unicorn startups

Chinese Funding Domination

A notable theme observed in India’s unicorn startups is the dominance of Chinese funding. Almost 65% of the unicorns are funded by Chinese investment companies like Alibaba Group, Tencent Holdings, Fosun, Steadview Capital, SAIF Partners to name a few. These Chinese funds have been able to bear the massive losses incurred by these startups during their initial growth phase where they are more focused on capturing the market share than profitability.

Chinese tech investors have put an estimated $4 billion into Indian start-ups. Such is their success that over the five years ending March 2020, 18 of India’s 30 unicorns are now Chinese-funded. TikTok, the video app, has 200 million subscribers and has overtaken YouTube in India. Alibaba, Tencent and ByteDance rival the U.S. penetration of Facebook, Amazon and Google in India. Chinese smartphones like Oppo and Xiaomi lead the Indian market with an estimated 72%1 share, leaving Samsung and Apple behind.

Indian Unicorns startups with Chinese Investors

There are three reasons for China’s tech depth in India. First, there are no major Indian venture investors for Indian start-ups. While RBI has strict regulations with respect to Foreign Direct Investment (FDI) in India, China has still managed to take early advantage of this gap. Alibaba’s 2015 investment in 40% of Paytm, a digital payments platform, paid off barely a year later when in November 2016, the government of India demonetised its large currency notes and simultaneously promoted a move to a cashless economy. Paytm benefitted from Alibaba’s superior fintech experience, which it applied to India seamlessly, making it a dominant player.

Second, China provides the patient capital needed to support the Indian start-ups, which like any other, are loss-making. The trade-off for market share is worthwhile. Third, for China, the huge Indian market has both retail and strategic value. Therefore, companies like Alibaba and Tencent have different considerations and horizons for their investments. In contrast, Western venture money is mostly through funds like Sequoia and SoftBank.

* Former unicorns which were acquired / IPO.
Source: MCA, ICGR, GlobalStats, PTI

About Admin

stockgyan Posted on

Hello! Welcome to Stock Gyan. Here we write interesting articles about stock markets, value investing, trading, data analysis and economy. Our goal is to break down complex financial concepts and topics into simple, easy to understand articles.

Leave a Reply

Your email address will not be published.