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Right Now (The StartUp Newsletter) Jun'20

What do real life Unicorns look like?

Humans are so obsessed with the concept of Unicorns that they eventually found a way to bring them to life. The term ‘Unicorn Startups’ was coined in 2013 by venture capitalist Aileen Lee.

Rules of the game: To ensure that spotting unicorns remains a rare sight, only Startups valued at more than 1 Billion US Dollars can use the adorned tag. To put it in perspective, Indian startups having a valuation of more than ₹7,616 Crore appx. are called unicorn startups.

How many does the nation boast? India has brought up 34 Unicorn startups till date which is 7% of the world tally (According to, there are 474 unicorns in total).

Is it a good thing?

Well, if it showed in their report-card then yes!

In reality, it’s just a milestone, not the end of the tunnel.


Is the Unicorn status worth the hype?

Time and again we’ve spoken about the ‘clingy-red-bottom-line’ of the startups that hide behind the façade of the ‘Unicorn’ tag. For an idea to be sustainable in the long-run, there must be signs of ‘Positive Unit Economics’.

What is the significance of Positive Unit Economics?

Speaking in a session with Inc42, Snapdeal (Unicorn) founders Kunal Bahl and Rohit Bansal spoke about the importance of unit economics. “Positive unit economics means the consumer is allowing you as a company to make money while serving them. Negative unit economics means you are having to pay the consumer to use your service. Snapdeal’s view for the last few years is that we made a lot of errors to get to this realization.”

Should valuation be the only metric of performance?

With clauses like Guaranteed Minimum Returns, investments are virtually made riskless which automatically attract higher valuations.

(To learn more, read our piece on Are Startups Overvalued? Yes, But why

& when?).

In an interview with Inc42, co-founder of Dream11 (Unicorn) Harish Jain points out how different investors often come with innovative voting

rights in order to get their returns. The truth is what we read are the

headlines only. The detailed agreement often reveals more than

what meets the eye.

Are Startups only a valuation game?

What we often forget is that the term ‘stakeholders’ has a much wider scope, as it gives equal importance to customers as much as it does to shareholders. An entrepreneur sets forth on the journey of entrepreneurship with the aim of finding realistic solutions to problems that we face in our day to day life and business. One cannot be in this only to bag higher valuations.

In an interview with Inc42, BookMyShow (soon to be a unicorn) founder Ashish Hemrajani, says, “Unicorn club is a total fallacy… You must have a purpose in life and a purpose of business instead. Build a culture and integrity in the business. Valuation, money, cash are by-products and those will come. Entrepreneurs need to understand that — your job is to leave a legacy and enjoy the journey and the byproduct.”

If not valuation, then what?

If Investors are in this for the volume game, what really matters in startups is its top-line. Startups that are able to achieve impressive topline growth are indeed worthy of the celebrity tags.

Dream11 (Unicorn) cofounder Harish Jain emphasized on the need for “revenue-corns” in the Indian startup ecosystem. Jain defined revenue-corns as companies with $1 Bn revenue, instead of simply going by valuation on paper.


New members of the Unicorn Club


In Depth Analysis - Revenue & Valuation

  • We calculated the Equity Value-to-Revenue Multiple (EV/R) of all the unicorns which revealed some astonishing numbers. Before we dive deeper into it, it is important to note that the ratio is often used as a valuation guide and it is considered to be lower the better.

  • To give you some perspective on what numbers can be considered realistic, let us consider EV/R ratio of some renowned startups that are now publicly traded:

  • One may say that it is indeed obvious that in the early days, this ratio will be inflated. Therefore, we also considered the median ratio of 34 Unicorns which comes to 20 times. Even you’ll agree that the numbers of the above 4 Unicorns are rather unfair.

  • What these figures tell us is that the Investors are indeed chasing massive volume that India has to offer.

  • Then why isn’t that reflected in the topline? Startups showcase products that are rather unconventional and thus require huge cash burn on marketing drives to win customers. India being a developing country where above 60% of the population is still living in the villages, it makes the task even tougher. Achieving volume has never created too much problem and most of these Unicorns have shown astonishing growth in volumes to attract the VCs. What is rather difficult in the Indian landscape is to get a fair price for the product offering. Once that starts coming, the revenue figures will fall into place.


In Depth Analysis - EV/R Spread of the Indian Unicorn Club


In Depth Analysis - Investment in Unicorns

  • Out of 90+ key investors that have invested in these startups, a whopping 83% are foreign investors. And more than 50% of the investors are based out of the USA. What does it mean? In the short run, Indian Startups have been largely successful in bringing scores of foreign investment in the country. However, in the long run, it may have adverse impacts.

  • Most of these investors are eying for IPOs as their strategic exit route. Most of these unicorns are expected to get listed by the end of the decade. Exiting with huge surplus would mean $ outflow back to their country, unless the investors continue to find fiscal sense in reinvesting.

  • In an annual event hosted by Tiecon in Jan’20, T V Mohandas Pai (former director of Infosys) said only 1/10th of the $60 Billion invested into Indian Startups since 2014 have come from domestic investors. Pai warned we risk the prospect of turning into a digital colony by 2025.


You can read the entire newsletter here.


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