How Does The Unicorn Count Varies?


Seven of the nine Indian unicorns between 2010 and 2017 were B2C companies, while InMobi and data analytics company Mu Sigma were the B2B entrants.

And that was that. Until 2018, which turned out to be a breakthrough year for B2B companies. There were four B2B unicorns that year and another five in 2019. They include India-focused ones like e-commerce company Udaan, fintech companies BillDesk and Pine Labs, as well as Delhivery and Rivigo.

But it is the globally-focused SaaS (software as a service) companies that have really blossomed—Freshworks*, Druva, Icertis and CitiusTech.

But, India’s SaaS success story almost never happened.

Why Achieving Success Is So Difficult?

While SaaS companies mushroomed globally at the start of the decade, break-out Indian ones were as rare as, well, unicorns. But the hunt for funds meant investors measured these companies using cost metrics over revenue ones. That hit valuations and curbed the pace of startup creation, we wrote in 2016, adding:

“Now, while all of this may come across as bad news for the SaaS sector in general, it is music to the ears of SaaS entrepreneurs in India. Because when cost becomes a primary consideration, India’s arbitrage opportunities come to the fore.”

Not just price, but also value arbitrage—or cheaper products with at-par features. The SaaS startups also invested aggressively in marketing and customer acquisition, targeting small and medium businesses (while the likes of Salesforce went after large enterprises).

The very ingredients that made Freshworks one of the first SaaS Indian unicorns in 2018 and the first VC-backed Indian startup to cross the $100 million ARR (annual recurring revenue) milestone. Freshworks, and the likes of Druva and Capillary Technologies, have set the trend. We predicted earlier this year that:

“Anywhere between half a dozen to a dozen Indian SaaS startups will almost certainly breach the $100 million ARR milestone over the next two-three years. This isn’t just optimistic musing—there’s also the sheer law of averages at work. Remember those 2,300 new B2B startups that have sprung up in recent years, many of which are SaaS-oriented. Such a Cambrian explosion of SaaS startups in India has sowed the seeds for several more $100 million ARR companies to emerge over the next decade.”

And SaaS unicorns? We’ll have to wait and watch.

Even outside the SaaS space, the winds of change are blowing. While B2C e-commerce has well-entrenched players in most retail sectors, the chorus of B2B firms has been getting louder.

Or, “B2B is the new B2C in India,” as B2B online marketplace Udaan’s founders say. The same set of enabling factors that helped B2C startups— the prevalence of internet-enabled phones and digital payments—have fuelled their B2B peers. To boot, the government’s move to open up foreign direct investment (FDI) in B2B and curb FDI in B2C has helped.

Nonetheless, as our story on Udaan noted, B2B e-commerce has its challenges, not least of which is organising a fragmented market where retailers prefer to strike deals offline. Then of course, giants like American e-tailers Walmart and Amazon are amping up their B2B game. (We covered the past decade in e-commerce here.)

The Flow

Even the flow of VC money is gravitating to B2B. Tiger Global is on the prowl again, flush with funds from its Flipkart exit in 2018. Now led by Scott Shleifer, Tiger is just as bullish, but on B2B firms this time around. But after SoftBank’s travails this year, Tiger needs to mind the valuation gap. Why?

“The eventual goal of every SaaS startup is to get to IPO. The valuation gap is the difference between what the public market multiples are pegged at and the valuation that private investors are willing to pay. Unlike consumer-focused companies where proxy metrics such as GMV (gross merchandise value) and traffic can be used to justify high valuations, SaaS companies operate under a much more stringent set of measures typically pegged to metrics such as revenue, profitability and growth.”

In other words, the focus has now shifted to strong and performing business models over high valuations—a harsh lesson two of SoftBank’s marquee companies learnt this year.