Unicorns transforming India’s corporate landscape

Almost all of these are technology-intensive businesses, employing thousands of software professionals; moreover, they operate primarily in the services space and, consequently, offer potential for employments across levels.

Neelkanth Mishra’s brilliant exposition of how India’s corporate landscape is transforming and how capital from private equity (PE) players is helping create a whole new breed of entrepreneurs, gives hope India can become a large economy in the not-too-distant future. What’s really encouraging is that because these businesses can be scaled up fairly quickly and therefore should, to some extent, be able to address the rampant joblessness in the country.

Almost all of these are technology-intensive businesses, employing thousands of software professionals; moreover, they operate primarily in the services space and, consequently, offer potential for employments across levels.

As Mishra has pointed out, India has never been short of entrepreneurial drive. We know this is true from the millions of micro, small, medium and big enterprises flourishing across the country. However, in the early days pre-liberalisation, what plagued industry was the shortage of risk capital and, of course, the licence raj; even post 1991, much of the capital was concentrated in the hands of big business groups.

Private equity is changing all that. And the results are showing. Start-ups now comprise a tenth of new companies being set up every year, as Mishra and his team at Credit Suisse have found following some painstaking research. Compared with 336 companies in the listed space that have a market capitalisation of at least $1 billion each, there are as many as 100 unicorns with a combined valuation of a staggering $240 billion, or roughly Rs 18 lakh crore. For more perspective, the BSE200 has a market capitalisation of Rs 174 lakh crore, while the Nifty50 commands a market cap of Rs 116 lakh crore.

Zomato, which curates restaurants and offers food delivery services, is a great example of how PE capital has helped nourish an idea whose time has come. As it prepares to list on the bourses, many more fledging businesses should take heart from its success as should PE investors. As Mishra has pointed out, the shortage of risk capital today is being addressed by PEs that are investing billions of dollars.

To be sure, the penetration of the internet, access to cheap data and affordable smartphones are all helping companies enormously, as is the vastly improved physical infrastructure (in terms of better road connectivity and electricity). The good news is that many of the start-ups are able to scale up rapidly as is evident from Credit Suisse’s findings, which show that two-thirds of the 100 unicorns came into being post 2005.

What’s even better is that the capital is flowing into not just a handful of sectors like fintech, edtech or foodtech, but into many more areas like SaaS, logistics and pharmaceuticals. Mishra has elucidated how technology helps lower the cost of ownership of a good or a service, “shifting the economy to a higher equilibrium”, citing edtech as one of the spaces that promises change. When education is delivered in-person, a teacher’s salary had to be apportioned among, say, 20 students.

Conversely, the ability of these students to pay fees determined the teacher’s salary, and as less than 15 % of India’s households can afford to pay more than about Rs 1,000 a month per child, teaching does not attract the best talent. However, as technology allows the best teachers to address a substantially larger number of students, not only do many more students benefit from the lessons, the much-needed competition is also likely to improve quality standards in education.

The benefits than can result from marrying capital with technology are inspiring, as is the prospect of public investments supporting start-ups—as they list on the bourses—and supplementing the funds put to work by PE. India’s corporate landscape is truly transforming.