The Indian startup ecosystem has been booming and growing steadily since 2016. The Startup India initiative launched in January 2016 was introduced to support and encourage the development of startups in the country. As of April 2024, the Department for Promotion of Industry and Internal Trade (DPIIT) has recognised over 127,000 startups in India.
These highly promising startups became unicorns over the years. By May 2022, India reached a significant point by becoming home to 100 unicorns. Neobanking startup Open raised $50 million to earn the title of India’s 100th unicorn. As of date, India has a total of 118 unicorns which have collectively raised over $100 billion in funding and are valued at more than $354 billion combined.
It’s a huge achievement but one thing is clear: behind almost every unicorn there’s a venture capitalist (VC) who believed in their dream, often long before anyone else. Besides providing financial backing, VCs have offered these startups the support needed to grow into unicorns.
In this blog, let’s define a unicorn and explore the strategies used by VCs in helping these startups become unicorns.
A unicorn startup refers to a privately owned startup company that is valued at over $1 billion. Aileen Lee, a venture capitalist, coined the term using the mythical unicorn to highlight how rare these successful companies are.
These startups achieve unicorn status because they are highly innovative and disruptive companies. They operate in various sectors such as technology, e-commerce, finance, healthcare, and more. Their growth is usually rapid, and they receive large investments from other investors and venture capitalists. These businesses frequently use cutting-edge technologies, innovative business plans, or successful marketing techniques to obtain a competitive advantage and a sizable market share.
https://www.statista.com/statistics/1155602/india-start-up-recognized-businesses/
https://inc42.com/features/indias-unicorn-club-the-comprehensive-list-of-unicorns-in-india/
Venture capital investors play a key role in helping many early-stage startups grow. Although not every company they invest in will become a unicorn, they nurture them to create billion-dollar ventures. Identifying the next unicorn is challenging, but VCs rely on specific strategies to discover promising startups with the potential for extraordinary success. Let’s look at them one by one:
Venture capitalists very well know how important founders are to a startup's success. They look for entrepreneurs who are highly passionate about their business, resilient, and have a thorough understanding of their venture. They search for founders who possess a growth-oriented mindset, a proven track record of success, and suitable experience.
Venture capital firms target unexplored areas, disruptive technology, or markets with significant growth potential. Venture capitalists are often interested in startups that can solve existing problems or target underserved markets. A "blue ocean" or uncontested market sector with little to no rivalry attracts venture capitalists the most, despite these becoming increasingly hard to find nowadays.
Venture capitalists seek out firms that take a distinct approach to setting themselves apart, be it through exclusive technology, intellectual property, network effects, or innovative business plans. A strong competitive edge improves a startup's chances of long-term success and scalability.
Investors look for businesses that have the potential to grow and develop very quickly. They evaluate a startup's business plan to see whether it can expand its operations, take up a sizable portion of the market, and make a sizable profit margin without going through several funding rounds.
Investors look for markets that offer significant returns on investment and a feasible exit strategy. Startups targeting niche markets should show how they can grow their market or enter related markets to attract investors' attention. If a startup claims it will capture 1% of the total market in its first year, investors will likely question it. A detailed and realistic market plan is key to convincing venture capitalists.
Investors carefully examine a startup's business model to assess its feasibility and potential for making money. They evaluate the startup's revenue sources, pricing structures, and monetisation techniques to ensure they are solid and in line with the market dynamics. Venture capital funding is more likely to be attracted to startups that have a clear path to profitability and a variety of income streams.
Venture capitalists play a vital role in turning startups into unicorns. They provide the necessary funding that startups need to grow quickly. Many startups struggle to take their ideas from concept to reality without this financial support. VCs offer money and share their expertise, helping founders make informed decisions. This combination of funding and guidance helps startups scale up and reach their full potential.
From January to August 2024, Indian startups secured an impressive $7.5 billion in venture capital funding, a significant increase from the $4.9 billion raised during the same period last year. This increase shows the growing confidence in Indian entrepreneurs' innovative capabilities. Some notable unicorn startup examples include Zepto, Swiggy, Spinny, Mamaearth, Razorpay, and Ola Cabs. Each represents a unique approach to addressing consumer needs and driving industry transformation.
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