The report comes at a time when India’s startup ecosystem has demonstrated its resilience and ability for strategic reinvention in the face of a prolonged funding winter. In fact, this report is the focus of the third edition of the ET Soonicorns summit, themed “From Resurgence to Resilience,” which puts the spotlight on startups’ ability to withstand economic headwinds and embark on a recovery path, focusing on building robust business models and sustainable long-term growth.
According to Neha Singh, co-founder of Tracxn, “The funding winter has drastically reduced the number of unicorns/soon-to-be-unicorns appearing in the Indian startup ecosystem. There has been a noticeable shift in the mindset of investors and founders post the end of the pandemic.” Case in point: despite India being the world’s third-largest startup economy, with 117,254 entities registered with the Department for Promotion of Industry and Internal Trade as of December 31, 2023, only two unicorns (with a valuation of $1 billion) were created in 2022. This is in stark contrast to the impressive count of 45, just two years ago.
Having sought high valuations and high customer acquisition costs with abundant funding at their disposal due to overvaluation of companies during the pandemic, most Indian startups seemed to be negatively impacted in terms of their long-term profitability prospects. Many startups had to resort to layoffs to expand their headroom as funding began to dwindle.
However, there was a silver lining: startups and business models were identified that are more sustainable and scalable regardless of market conditions – one of the key takeaways from the ET Soonicorns Summit 2023. “The focus of entrepreneurs and investors has shifted from rapid expansion to sustainability and business profitability,” Singh adds.
The report comes as part of the Economic Times’ ongoing endeavour to track the latest trends, shifts and disruptions in India’s startup ecosystem and capture its pivotal moments. Amidst seismic technological changes, economic challenges and a rapidly evolving startup scene, this report highlights companies that are on the verge of significant growth. These “soonicorns” – companies with the potential to soon reach unicorn status (a valuation of over $1 billion) – are the pioneers of India’s tech-driven future. And the report is a tribute to the relentless ambition of these pioneers, who continue to lead the charge in India’s burgeoning innovation economy.
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However, the title of soonicorn is not easily earned. The rigor of Tracxn’s selection process: How quickly are unicorns identified?
Tracxn, the report’s research partner, implements its rigorous selection process, ensuring that the evolution is based on more than a single or overwhelming metric.
Ideally, a company with a unicorn profile would exhibit one or more key metrics: funding of more than $40 million or a valuation of more than $100 million. These companies have the potential to become unicorns in the near future, according to Tracxn.
However, financing and valuation are just the starting points.
Singh explains that Tracxn also takes into account a wide range of other factors, such as the innovativeness of the company’s business model, the technology used, patents filed, the team’s track record, customer base, number of employees, and even social media presence. Singh reports that the data intelligence firm takes a holistic view, which includes the presence of prominent investors and a startup’s ability to disrupt or innovate its industry.
The selection methodology is not limited to quantitative metrics. Singh stresses that qualitative data is equally essential to understanding what differentiates a company from its competitors. “While there are many companies raising funds, we try to identify why investors are interested. Is it the technology they are using? Is their business model disruptive? These are the deeper questions we ask ourselves,” he explains. In some cases, particularly for companies that are self-funded, qualitative data can be more revealing than financial numbers.
The ET 50 Future Unicorns of Karnataka report provides a comprehensive assessment, offering a section of data-driven analysis and insights that delve into the soonicorns’ business models, sectors poised for growth, and key performance indicators.
Karnataka remains India’s top startup hub
One of the most significant challenges that startups have faced recently is a prolonged “funding winter.” Since 2021, overall funding for startups has been on the decline, and 2024 is no exception. As Singh notes, “This year, Karnataka has witnessed $2.51 billion in funding, which is a 16% decline from the same period in 2023.”
As startups continue to move from their foundations of resilience of last year to a springboard of hope for resurgence, the ET 50 Future Unicorns of Karnataka list paints a compelling picture of the state’s startup ecosystem.
It is not just a testament to the indomitable spirit of Karnataka’s startup scene, which has weathered economic uncertainty and emerged more innovative than ever, but also a study of what makes Bengaluru what it is: fertile ground for startups.
Home to over 420 minicorns and over 120 soonicorns, Karnataka is a powerhouse of entrepreneurial energy and innovation, positioning itself at the heart of India’s emerging innovation economy.
An Ode to Bengaluru
Home to nearly 12,000 active startups, Bengaluru’s tech ecosystem remains one of the most fertile grounds for innovation in the country.
According to Tracxn data, Bengaluru accounts for the highest number of soonicorns in the Indian startup ecosystem, followed by Delhi NCR and Mumbai. “Tech startups from the city have attracted nearly 45% of the total funding raised by the Indian tech startup space. Indian tech startups have raised $165 billion till date, of which $75 billion is from Bengaluru-based startups,” Singh adds.
What makes Bengaluru a startup hotspot? It’s a combination of several factors. “Bengaluru has a higher concentration of investors, adequate infrastructure support and a young, tech-savvy population,” says Singh. Government support has also played a key role in enabling startups to thrive in this region. “The government has been proactive in encouraging startups through initiatives like the Karnataka Startup Policy,” says Singh.
The cosmopolitan nature of the city is another essential ingredient in its thriving startup scene. Singh also credits Bengaluru’s “remarkably diverse population, which brings together ideas and innovation from across the country.” This diversity, Singh argues, has fostered a unique entrepreneurial spirit where startups not only solve local problems but also think globally. Investors, founders, and consumers alike have embraced this culture of innovation, making Bengaluru the beating heart of India’s startup ecosystem.
Some of the most funded business models in Bengaluru include e-commerce marketplaces, online exam preparation courses and ride-hailing services. The city has also witnessed 558 acquisitions, including some high-profile ones like Walmart’s acquisition of Flipkart and Tata’s takeover of BigBasket.
As today’s soonicorns continue to drive innovation and navigate the complexities of the funding landscape, they are laying the groundwork for India’s future unicorns.
The ET 50 Future Unicorns of Karnataka report will be launched on September 20, 2024 by BV Naidu, Chairman, KDEM.
Make sure to stay tuned for the official launch of the report and join the celebration of Karnataka’s most promising startups as they continue to drive India’s growth story.
ET Soonicorns Summit is sponsored by Phoenix Kessaku. Training Partner: UpGrad Enterprise; Insurance Partner: PolicyBazaar for Business; Banking Partner: Bank of India. Gifting Partners: IGP.com; The Mind and Company, Plum, Clay Capital.
For more information on the ET Soonicorns Summit, visit the website.
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