made news last week as it became a unicorn (companies valued at over $1 billion), but at least five more are waiting to join the billion-dollar start-up club. In a shift from the current trend, many of the would-be unicorns do not belong to the pure-play e-commerce universe.
According to the data compiled from diverse sources, of the next five companies closest to breach the $1-billion valuation mark, three are business-to-business (B2B) firms — technology-enabled logistics player Rivigo, point-of-sale (PoS) service provider Pine Labs, and software as a service (SaaS) company Freshworks.
This puts them on a par with online grocery retailer BigBasket
and budget hotels network Oyo, which have been called the next-generation giants.
Among the top contenders to enter the unicorn list, Rivigo, a surface transport and logistics company that owns and aggregates trucks for offering road freight services, has raised close to $180 million so far and is valued at $945 million. The Gurugram-based company registered revenue of Rs 4 billion and turned a loss of Rs 1.37 billion in 2016-17. Funded by Warburg Pincus
and SAIF Partners, the company is targeting profitability this year.
In the same range is Pine Labs, which enables digital payments in the offline space by deploying PoS devices, while also offering a series of financial services. Valued at $900 million, it has so far raised $208 million in funding from the likes of Sequoia and has also brought onboard investors Temasek Holdings
The company had revenue of Rs 1.95 billion in 2016-17.
Freshworks, valued a bit lower at $700 million, is a provider of cloud-based software solutions to businesses across the globe. The company is one of the most highly valued SaaS companies in the country. The Chennai-based firm reported revenue of Rs 1.99 billion and a loss of Rs 6.2 million in 2016-17. It has raised around $150 million in funding so far from investors such as Sequoia and Tiger Global.
Currently, of the dozen or so Indian unicorns, only two are service businesses — InMobi and Mu Sigma. Even among the unicorns that serve consumers, e-commerce firms make up the majority.
The data from Intelligence firm Tracxn, which follows the start-up sector in India, suggests there are 132 start-ups valued at over $200 million, but under $1 billion, that could be the next unicorns. While a majority of the firms are business-to-consumer (B2C) in nature, the number of B2B firms in the mix of soonicorns (start-ups with the potential to become unicorns) is higher than ever. Also, the list includes game developers, media companies, network infrastructure providers, and start-ups from several other sectors.
“I think there are a lot of B2B companies which are building up to be big and none of these entrepreneurs is looking to sell early. I think it is fair to say that we will see more B2B companies becoming unicorns in the near future than what we have seen in the past,” says Prashanth Prakash, partner at Accel Partners.
Logistics, fintech, and software products are three sectors that are expected to see a lot of demand in the next few years and have been on the investors’ radar for a while now. Even though B2B start-ups struggled to attract investments in the early years of India’s start-up boom, that trend reversed as these companies proved to be far more capital-efficient.
“I do not think you will see as many B2B unicorns because the sector has developed a much more robust mergers and acquisitions pipeline than the B2C sector. So, many of these companies might not reach the billion-dollar scale on their own. But the fact remains that they have proven to be able to create value for investors and are not as cash hungry as these B2C players,” says Venkatraman Balakrishnan, former chief financial officer of Infosys. His investment company Exfinity Venture Partners invests exclusively in B2B start-ups.
Jaideep Mehta, industry analyst and chief executive officer of investment Intelligence platform VCCircle, however, says he is not sure if the number of unicorns will be more or less. “But it definitely looks more promising in terms of sustainable and profitable businesses.”
Meanwhile, international expansion remains a big draw in getting a good valuation. For instance, OYO, certain to join the unicorn club soon, recently announced its expansion into China. Earlier, Zomato, Practo, and Ola have gone international.
Another promising trend that industry watchers and investors are pointing at is a diverse mix of consumer facing start-ups climbing the ladder more than ever. OYO
is a network of budget hotels, Practo is a service to find doctors and beds in hospitals, and Byju’s is an online education company.
E-commerce is likely to see billion-dollar companies in specific verticals such as food ordering (Swiggy
became the second unicorn after Zomato in this space last week), grocery delivery (BigBasket
and Grofers are two of the big players here), online ticketing (BookMyShow) and others, according to analysts.