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India's unicorn boom shows no signs of slowdown

Startups that meet demand for business services are growing rapidly

The Bombay Stock Exchange in Mumbai: Indian stocks have been on a bull run since last year.   © Reuters

TOKYO -- The number of Indian unicorns -- privately held companies worth $1 billion or more -- continues to balloon. A shocking 15 Indian startups became unicorns in the first half of this calendar year; nine more reached unicorn status in July and August.

That is more new unicorns created in India in just two months than the eight that emerged in all of 2020. It brings the country's total to 57, closing the gap with China, which boasts about 160 unicorns, which in turn is second only to the U.S., with roughly 400.

Among the nine Indian companies that became unicorns in July and August, five are engaged in business-to-business (B2B) services, two are in online education, one is a crypto asset exchange and one is an online used car marketplace aimed at consumers. Their composition reflects the recent rapid expansion of India's B2B sector. Eight of the 15 startups that became unicorns in the first half of the year were also B2B companies.

A quick look at the newest unicorns is revealing.

Zetwerk, which crossed the $1 billion valuation threshold in a late-August funding round, has brought a variety of manufacturing suppliers and subcontractors online. Metal and plastic mold makers, machinery parts manufacturers, machine builders, precision metal fabricators and others take orders from around India and around the world using the company's online platform. Zetwerk also offers customs clearance and other cross-border trade services and working-capital financing. This helps small and medium-size Indian suppliers and subcontractors grow beyond state and national borders. Leading U.S. venture capitalists, including Sequoia Capital and Accel, are among the company's major shareholders.

OfBusiness, which reached a valuation of $1.5 billion at the end of July, is an online B2B trading platform specializing in industrial materials -- including steel, plastics and cement -- along with grains and other foodstuffs. Manufacturers, construction companies and food processors, among others, use the online platform to procure materials. The company also acts as an intermediary for loans from banks and other financial institutions to help small and medium-size enterprises procure raw materials on the OfBusiness platform. SoftBank Vision Fund 2, a Japanese investor, led the most recent round of funding.

BharatPe, which was valued at $2.8 billion at the end of July, is a mobile payments platform that allows vendors to accept various QR code payment applications such as Paytm and PhonePe with a single QR code and manage transactions and bookkeeping with a single smartphone app. Sequoia and Tiger Global from the U.S. are major shareholders. Singapore-based venture capital specialist Beenext also invested in the company early on.

BlackBuck is an Indian pioneer in trucking transport supply-demand matching, a field that is spreading globally. In late July, the company raised funds from the World Bank's International Finance Corporation and others to reach a valuation of just over $1 billion. Sequoia, Tiger, and Accel are also among its shareholders.

Until now, many small and medium-size businesses in India have relied on personal connections, manpower and cash, leaving them mired in low growth and low productivity. The asymmetry of information was so great between ordinary small and medium-size enterprises and big companies with nationwide operational networks that only large corporate groups were able to expand their businesses nationwide and diversify into unfamiliar markets.

But the rise of online B2B services is bringing a quick end to that era. It is a textbook example of "leapfrogging," in which underdeveloped industries vault to prominence, thanks to the internet. With the increasing number and variety of online B2B services, India's 60 million small and midsize companies are able to tap into networks of customers, suppliers and information technology vendors through a personal computer or smartphone.

As more of these smaller companies use these new services, their growth will likely accelerate, which will create more high-quality jobs and lift the growth potential of the entire Indian economy.

As China's leadership tightens its ideological grip on big tech and other private-sector companies, yield-hungry global investors are increasingly placing their bets on other markets. India's startup equity market is the largest of these. The rising number of Indian unicorns may partly reflect inflated valuations, driven by the shift in international investment flows.

But it is also true that these new unicorns are building convincing business models base on new sources of demand. The virtuous cycle of ample funds fueling the growth of promising startups seems likely to continue for some time in India.

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