This is the decade of startups!! As per a report by the Business Standard, startups in India grew from a conservative 726 in FY 2016-17 to a staggering 65,861 in FY 2021-22. This has been a tremendous boost and a display of India’s capabilities to innovate and lead. But what’s more interesting is the fact that India is the third-largest in the world with 100+ unicorns. As per the Ministry of Commerce and Industry, 1 out of every 10 unicorns in the world is born in India. People often ask what unicorn means and how a company can become a unicorn startup in India. Find out here!
Unicorn means a privately held startup company that has achieved a valuation of $ 1 billion. In Indian currency terms, that’s roughly around Rs. 7500 crores. That’s a huge valuation for any privately held company.
Becoming a unicorn is a dream for all the startups and a great milestone to achieve. InMobi, a mobile advertising startup, became the first unicorn startup in India back in 2011. After 11 years, India gets its 100th unicorn with the neo banking fintech portal ‘Open’ entering the elite club.
How Are Unicorns Valued?
Now that we have understood the unicorn meaning in entrepreneurship, how is unicorn status achieved? How are such high valuations achieved by unicorns?
The valuation of unicorns is usually determined by the investors and venture capitalists that have participated in the financing rounds of the company. Several factors interplay while determining the valuation of the unicorn. One might wonder how is it possible for even the presently loss-making startups to attain such a high valuation?
The valuation of a unicorn is not solely based on its current performance and profitability. It involves long-term forecasts and analysis of its financial model. Here are some of the reasons for unicorns achieving such high valuation:
- Fast Growth Strategy: Here, the investors invest a huge chunk of money in a bid to help the unicorn attain faster growth while also allowing investors to capture a higher share in the start-up. This leads to unicorns attaining a high valuation regardless of current performance and profitability. With each round of funding, the valuation of unicorns reaches newer heights.
- Better Innovations: Start-ups with better innovations often attract investments from multiple investors. If your idea has the capability to solve a real problem, then you are most likely to receive funding from multiple investors.
- Strong Network of Users: There are many startups that base their revenues on their network of users. While the services provided to the users are free, this creates an opportunity for brands to gain visibility. For instance, social media are free to use and have some of the most significant user engagement ratios. Therefore, this creates an opportunity for the brands to gain the users’ attention, further increasing their sales. This enables social media to earn through advertisement. Such models have done well in attracting investors.
- Market Competition: If you are new to the industry or have little to no competition, then you are most likely to attract investors. Being an early bird, you can access a vast unexplored market for your new product or offering. This is likely to shoot up your investments. Conversely, if a startup has just created a replica of an existing business or model or is entering a market with huge competition, then it will face a hard time wooing investors, adversely impacting valuations.
- Buyouts: More often than not, big players buy out startups to enter a new segment to diversify their business or own new technologies. This relieves the bigger players from building from scratch and gives them a head start.
Also read: How To Register A Startup Company In India?
Stages of Startup
While the meaning of unicorn in the startup ecosystem is prominent, the unicorn is only one of the many stages that a startup goes through. As the valuation of a startup increases, it climbs the ladder to the top. Here are the stages of a startup in terms of its valuation:
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Frequently Asked Questions
A: As per Wikipedia’s report, the United States of America (USA), India, China, Israel and the United Kingdom are the top 5 countries with the most unicorn businesses
Only 1 – 2% of startups are able to achieve unicorn status.