Year of the unicorn: The explosion of unicorns is a salute to Indian entrepreneurship, and investor fear of China

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Arcane financial market terms rarely enter popular consciousness. However, 2021 is different. Unicorn, a term to describe a privately-held startup that’s valued at over $1 billion, has come to represent the promise of India’s economic potential. In January, Nasscom said India added 12 unicorns last year to take the total to 39, the third largest globally. In a mere six months of 2021, records have been broken. Around $12.1 billion of private capital was raised by startups, exceeding last year’s fund-raising by more than $1 billion. The unicorn count at the end of year will be well past 50.

What’s driving this boom? Mainly, a combination of three factors. Fast-paced internet penetration, a smooth transition of retail transactions from offline to online and the phenomenon RBI’s called ‘fomo’ (fear of missing out). The fomo factor for foreign investors  loomed large following the Chinese government’s crackdown on its technology companies. Chinese firms may have raised about $26 billion in new listings in the US since the start of 2020, but recent events have heightened risks and made Indian firms relatively more attractive. There are other reasons too.

China’s technology ecosystem is a product of a state industrial policy.  Recent policies have emphasised artificial intelligence (AI), the domain where the strategic rivalry with the US is being played out. America’s National Security Commission on AI said in a report released in March that China is an AI peer in many areas and a leader in some applications. Given this background, the technology ecosystems of China and India are not strictly comparable. But what is a cause for cheer is the backing India’s young entrepreneurs have received and its positive impact on jobs. Perhaps, economic historians in future will look back and dub 2021 the year of the unicorn.

This piece appeared as an editorial opinion in the print edition of The Times of India.


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