BDO India launched their private equity report titled “The NEXT WAVE - Unicorns of Today, Giants of Tomorrow”, highlighting the sturdy growth of Unicorns/ Soonicorns in India. The report unveiled many interesting facets in India’s emerging leadership in a digital and flat world. The report is based on the responses received through a survey conducted by the firm. The survey received responses and insights from over 70 members of the PE/ VC community.
As per the report, while Internet Software & Services and E-Commerce & Marketplace featured among the Top 5 Sectors where Unicorns in India will emerge on expected lines, three other major sectors that need to be watched are: Fintech, Healthcare and AI/Robotics/BI. “We are seeing interesting deals especially in the Fintech and Healthcare domain. Big Data & Analytics and Supply Chain/ Logistics are also catching the investor’s eye”, says Samir Sheth, Partner and Head Deal Advisory Services and Private Equity Leader, BDO India.
Business models of established Unicorns stand on the strong economic moats of Disruptive Innovation, First Mover Advantage, Tech Paradigm Shift and Consumer Focus. For Soonicorns, First Mover Advantage scores high and the survey revealed a line-up of 45+ interesting ventures across sectors which are seeing strong interest.
India is a unique place where demand dynamics in multiple sectors are seeing structural changes. The respondents of the survey rated ‘Market Potential in billion dollars’ ‘Clarity of Vision’ & ‘Execution’ as top factors in the creation and success of Unicorns.
Investors also preferred usage of Big Data and Analytics in key areas of actual marketplace that influence consumer behaviour and drive demand/ revenue/ profitability. The report highlights two attributes that take ~50% mindshare in driving differentiation in the market ecosystem, these are (A) Products/ Services customers truly love (B) Creating frictionless consumer experience.
Five factors have been ranked high in valuing productivity of Unicorns/ Soonicorns with customer acquisition cost being the single largest factor. Unicorns/ Soonicorns should enjoy 10-30% EBITDA advantage to remain competitive and a preferred choice.
~50% of investors have assigned higher weightage to entrepreneurs creating ventures in their field of knowledge and experience. Top 3 attributes, entrepreneurs/ leaders must have to establish a dynamic Unicorn are Vision, Eye for Talent and Adaptability to change. Early induction of external/ independent directors has been cited as a welcome development.
While 70% of respondents feel that they have been over-paying for equity in these ventures, valuing these ventures has its own sets of challenges. While the report indicates that the preferred methodologies in valuing Unicorns are ‘MCap/ Revenue or MCap/ GMV and EV/EBITDA’, Samir shares, “Our investor discussions cited that elongation of profitability metrics and premium to be assigned to a differentiated business model, are key challenges faced in valuing Unicorns”. These points figured in the report as well.
Further Samir quoted “India’s promising base of Unicorns/ Soonicorns will surprise the world in 2019. 2018 was an eventful year - following US and China, India became the third largest country with respect to incremental additions to the Unicorn Club. This dominance will only accelerate as the (existing + new) emerging leaders of tomorrow leverage the structural changes in India”.
The preferred mode of exit route from Unicorns is Strategic buyouts/ M&As. Coincidentally this was reflected even in India’s PE industry developments in 2018: Walmart-Flipkart, Samara Capital & Amazon in ‘WitzigAdvisory’ which has agreed to acquire More, Teleformance acquired Intelenet etc.
To conclude, approximately two-thirds of respondents feel that India’s Unicorn story will go the US way. Apart from the well-established Unicorns, Soonicorns that have seen maximum mentions are BigBasket, Bookmyshow, CureFit, Delhivery, Freshworks, Lenskart, Mobikwik, Rivigo, and Zerodha.
