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How the unicorns of 2021 stand out from the

rest

PREMIUM
One measure of valuations is the ‘revenue multiple’, or the ratio between a
company’s value and its latest revenues. Reliance Industries is valued at a
revenue multiple of three times; Tata Consultancy Services and HDFC Bank at
around seven times. (Mint)

3 min read . Updated: 13 Oct 2021, 01:47 AM IST

Ranju Sarkar, howindialives.com

As many as 31 Indian startups have hit a billion-dollar valuation in 2021. As

they go from the warm glow of fund-raise to the cold realities of doing
business, factors such as steep valuations, cash-guzzling consumer businesses,
and low founder holdings will all come into play

This year’s juggernaut of Indian tech startups turning unicorns, or

reaching valuations of $1 billion or more, is ticking along. The
number jumped to 33 as three—cryptocurrency trading platform
CoinSwitch Kuber, cloud kitchen Rebel Foods, and meat seller
Licious—entered the coveted club last week, while two others—
payments firm MobiKwik and online portal for cars CarDekho—
joined this week . As online businesses gain traction, an investing
landscape flush with cash and the emergence of public listing as an
exit route for investors have contributed to this blitz of fundraising
and surging valuations.

One measure of valuations is the ‘revenue multiple’, or the ratio

between a company’s value and its latest revenues. Reliance Industries
is valued at a revenue multiple of three times; Tata Consultancy
Services and HDFC Bank at around seven times. But of the 25 tech
startups that turned unicorns in 2021 for which revenue data is
available, only one has a revenue multiple below 10, shows data from
Tracxn, a platform for startup data. The rest were valued between 13
and 2,073 times their revenues.

Only 1 out of 25 unicorns was valued at a revenue

multiple of less than 10
Number of companies that turned unicorns in 2021 by revenue multiple

NOTE: Data for 25 companies whose revenue data was available. Latest full-year revenues were as of
December 2019 in 21 instances and of December 2018 in 4 instances.
Source:
Tracxn
•
Get the data

To justify such valuations in the long run, these companies must grow
revenues briskly—year after year. Assuming no change in valuation, a
company with a revenue multiple of 50 (for example, Grofers) needs
to double its revenues for three straight years to see this multiple fall
below 10. At a revenue multiple of 1,000 (CRED and Groww), that
pathway is seven years. In the long run, an inability to grow fast, or
spending sprees that don’t translate to commensurate revenue and
profit gains, could knock back valuations.

The revenue multiple of the 2021 unicorns covers a

wide range

Note: Selection from companies that turned unicorns in 2021 and whose latest full-year revenues
available was as of December 2019.
Source:
Tracxn
•
Get the data

B2B-B2C Differences

Of the 27 that turned unicorns in 2021 and for which data was
available, 15 cater to individuals and the rest to businesses as their
target customers. Typically, business-to-business (B2B) ventures need
less capital, and have a quicker and easier path to profits. Business-to-
consumer (B2C) companies tend to spend big on customer acquisition
and forming habits, and so consume more capital and have a longer
path to profits.

Yet, the 15 B2C firms in the list of 27 have raised twice as much funds
over their short lifespans as the B2B set, despite trailing big on
revenues and profitability. However, in the latest fund-raising and
unicorn frenzy, the B2B set has matched the B2C set in funds raised.
While the B2C set has raised 32% of its funds in the latest round, the
corresponding figure for the B2B set is 53%. B2B startups and their
investors either see more robust business prospects or they are trying
to ride the investing momentum.

B2B companies have matched B2C companies in

the latest fund raise
Amount ($ million)

Source:
Tracxn
•
Get the data

Low Founder Holding

As start-ups raise funding over multiple rounds, be it to fuel their

growth or to stockpile cash while it is easily available, founders are
often forced to part with a big chunk of equity ownership. Founders
hold less than 25% stake in 11 of the 19 unicorns of this year for
which shareholding data was available. Eight of these 11 are B2C
companies, underscoring the capital-intensive path chosen by them.
The founders of Vedantu, PharmEasy and Grofers all hold just 7-8%
in the companies they set up.

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A low shareholding typically means founders have less skin in the

game and the real control rests with investors. But in terms of how
much founders’ stakes have been diluted, the 2021 batch is only
tracing the path of unicorns that preceded them. For a broader set of
50 startups for which such data is available, which includes the class
of 2021 as well as those from older years, the median holding of
founders is just 15%.
In more than half the 2021 unicorns, founders own
less than 25% of their company

Note: Data available for 19 companies.

Source:
Tracxn
•
Get the data

Wide and Deep

Conversely, low founder shareholding shows the presence of

institutional investors among Indian startups is both wide and deep.
The 27 unicorns from the 2021 batch for which such data is available
have a total of 254 institutional investors, or an average of about nine
each.

Sequoia, Tiger and Accel all have a significant

exposure to the 2021 unicorns
Number of 2021 unicorns backed (out of 27)

NOTE: * Trifecta Capital and Innoven Capital are debt investors, though there could be an equity
component structured in the funding structure.
Source:
Tracxn

Amid this investor diversification, there is also a concentration at the

top end. Three prime movers in the early-stage investing space—
characterized by high risk and high returns—have a rich presence in
this set of 27. Sequoia is invested in 15 companies, Tiger Global in 14
and Accel in 10. Following them are names like B Capital, Beenext
and Dragoneer Investment, who are typically mid-stage investors.

Right now, there’s generous fund-raising happening at steep

valuations. At some point, the focus will shift to capital usage,
business growth and investment returns. That will show how the
unicorn batch of 2021 truly fared.

(howindialives.com is a database and search engine for public data)

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