- Date : 29/10/2021
- Read: 7 mins
Know about unicorn start-ups with a valuation of USD 1 billion and understand how they have created wealth for all their stakeholders.
Start-ups, their valuations, and their unicorn statuses have all been in the news for the last couple of years. Some months ago, the stock market listing of Zomato, one of the biggest food delivery apps, dominated headlines. After Zomato’s spectacular stock market listing, many other start-ups are also looking to list on the Indian stock exchanges. This has made retail investors curious about start-ups - how they are valued, what unicorns are, etc.
This article will explain what a unicorn start-up is, how many of them are there in India, and how they have created wealth for their owners, employees, and other stakeholders. Let us start by understanding what a unicorn start-up is.
What is a unicorn start-up?
Start-ups raise money from venture capitalists through various rounds of funding. During every funding round, the investors and owners of the start-up agree to a certain start-up valuation. Based on this valuation, investors invest money in the start-up in exchange for a stake in it. When the valuation of the start-up reaches USD 1 billion, it is known as a unicorn start-up.
For start-ups, the term unicorn was first used in 2013 by Aileen Lee, the founder of Cowboy Ventures, a venture capital fund in the US. According to Lee, from the many start-ups that started during the dot-com boom during 2000, very few (0.07%) reached the USD 1 billion valuation mark. She used the term ‘unicorn’ for start-ups in this context, as finding a start-up with a valuation of USD 1 billion was so rare that finding one was as difficult as finding a mythical unicorn.
Related: Initiatives By The Indian Government To Boost Startups In India
Unicorn start-ups across the globe
In 2013, unicorn start-ups were rare and difficult to find. However, as of today (2021), there are many of them spread across many countries throughout the world. While the US, which is the hub of innovation, has the highest number of unicorns, China and India are not too far behind in terms of the number of unicorns.
The above image shows the various unicorns start-ups in different countries across the world.
Unicorn start-ups in India
Many start-ups are flourishing in India.
- How many: As of 6 October 2021, there are a total of 68 unicorn start-ups in India.
- Unicorns in 2021: Of the total 68 unicorns as of date, 31 became unicorns in 2021.
- India’s first: InMobi was the first Indian start-up to achieve unicorn status in 2011.
- Highest valuation: Among Indian unicorns, Flipkart has the highest valuation of USD 37.6 billion, followed by BYJUS (USD 18 billion) and Paytm (USD 16 billion).
- Unicorn city: Of the 68 unicorns in India, 31 are based out of Bengaluru.
- The year with most unicorns: 2021 has produced the largest number of unicorns (31 so far).
Note: All of the above data is as of 6 October 2021
Unicorns giving their way to decacorns
Unicorns were something rare to start with. But now, India and other countries have started producing many unicorns, and that space has started getting crowded. So, we need to start looking at the next level of valuation, which is a ‘decacorn’. A decacorn is a start-up with a valuation of USD 10 billion or more. In India, Flipkart, BYJUS, and Paytm have already achieved decacorn status, while OYO Rooms is within striking distance with a valuation of USD 9.6 billion.
In the coming years, we will hopefully see many decacorns emerging in the Indian start-up space and hopefully also see the first Indian start-up with the next-level valuation of USD 100 billion. We are yet to coin a term for a start-up with a valuation of USD 100 billion. Hopefully, we will have that term also very soon.
Wealth created by start-ups
Many start-ups have created tremendous wealth for their stakeholders - owners, employees, investors, etc. Many start-ups have attained the coveted unicorn status within five years of their inception. Let us look at some of the start-ups that became unicorns in the shortest time.
As seen in the above table, as of October 2021, Ola Electric, Paytm Mall, and Udaan are the fastest to become unicorns - taking just two years. Many start-ups continue to create wealth even after becoming unicorns. Let us look at the amount of wealth created by some start-ups after they became unicorns.
Note: The above data is as of 6 October 2016
Zomato listing: Shareholder wealth creation
From the unicorn start-up space, Zomato came out with its IPO in July 2021. Its IPO got a tremendous response, with the issue getting oversubscribed a huge 38 times. The issue price was Rs 76.
- Wealth creation for public shareholders: The share got listed at a huge premium, and the listing day closing price was Rs 125 (premium of 65%). As of 6 October 2021, the share price closed at Rs 138 (up by 81% from the issue price).
- Wealth creation for founders: On the day of listing, Zomato founder Deepinder Goyal held a 4.7% stake in the company. Deepinder’s net worth increased to USD 650 million based on his 4.7% stake in Zomato. He is among the 1% richest Indians.
- Wealth creation for early-stage investors: One of the first investors in Zomato was Info Edge (owner of Naukri.com). Info Edge invested Rs 4.7 crore in Zomato. On the day of the Zomato listing, the Rs 4.7 crore investment was multiplied by over a whopping 1000 times.
On the first day of listing (26 July 2021), Zomato had a market capitalisation of USD 13.3 billion or Rs 1 lakh crore. So, Zomato has multiplied investor wealth by 13.3 times since turning a unicorn.
The above is Sanjeev Bhikchandani’s (founder of Info Edge) tweet on the day of the Zomato listing. He has highlighted how Info Edge’s initial investment of Rs 4.7 crore multiplied more than 1000 times on the day of Zomato’s listing.
Unicorn start-ups create wealth for employees
We have heard of many start-ups offering Employee Stock Ownership Plans (ESOPs) to their employees. Freshworks is one of the start-up companies that offered ESOPs to many of its employees. In September 2021, when the company got listed on the US stock exchange, it made history by creating 500 crorepatis out of its employees. All these 500 employees became crorepatis because of the Freshworks shares they got as part of the ESOP. It is a great example of how start-up unicorns can create wealth for their employees, along with the owners, early investors, and public shareholders.
Unicorn start-ups can create wealth for all stakeholders
One of the biggest success stories in the Indian start-up space is Info Edge. It was the first Indian company to get listed from the Indian start-up space. Since its listing, the company has created tremendous wealth for its founders, employees, early investors, and public shareholders.
As seen in the above image, the share price of Info Edge was around Rs 300 in 2007. As of 7 October 2021, the share price is Rs 6600. So, in the last 14 years, Info Edge has multiplied shareholder wealth by 22 times.
After the successful listing of Zomato in July 2021, many more unicorn start-ups are looking to get listed on the Indian stock exchanges. With a stock market listing, public shareholders will get an opportunity to participate in the wealth creation journey of unicorn start-ups along with the founders, employees, and early-stage investors. So, while many unicorn start-ups have already created a lot of wealth for their founders, employees, and early-stage investors, for public shareholders, the wealth creation journey with unicorn start-ups is just getting started, and there is a long way to go.