India created more than twice as many unicorns as China in 2022, IVCA-Bain & Co report says

The young Indian generation is more inclined towards entrepreneurship and has been creating unicorns in double digits for many years.

Their entrepreneurial acumen was highlighted again on Wednesday, when IVCA-Bain & Co reported that India created two times more unicrons than China last year.

While China created 11 unicorns in 2022, India toppled its neigbouring country with 23 unicorns. 

The report says this is also the second year in a row that India has left China in the second spot.

By adding 23 new unicorns to the tally, India brought the total number of such high-value companies to 96.

Even though 23 is a significant increase over China, it represents only nearly half of what India would produce in 2021.

India created a record 44 unicorns in 2021, bringing the overall number to 73.

The valuation of a unicorn is $1 billion or more.

The report also shows that the trend of unicorn creation is also moving towards non-metro cities in India.

According to the report, nine of the 23 unicorns added last year emerged from cities outside of the top 3 metros.

This means that funding to startups in non-metros grew to 18 percent of the total inflows.

The year also saw many investors raise their largest-ever India-focused funds, the report said, adding SaaS (Software as a Service)-based and fintech players maintained the deal value while consumer tech declined.

The year 2022 saw a recalibration in venture capital investments in the country as increasing macroeconomic uncertainty and recessionary fears affected investment momentum, according to Bain & Company's annual report in collaboration with the Indian Venture and Alternate Capital Association (IVCA).

The report said the country added 23 unicorns notwithstanding the 33 per cent compression in the deal value faced by the domestic startup ecosystem, from $38.5 billion in 2021 to $25.7 billion in 2022.

The decline in funding was largely over the second half of the year as macro headwinds intensified.

Despite such a deep compression, early-stage companies continued to see sustained momentum, buoying deal volume to over 1,600 venture capital investments in 2022.

According to Arpan Sheth, partner at Bain & Co, overall funding saw a drop in 2022, led by a decline in late-stage large deals.

The ecosystem has faced foundational shifts as VCs pivoted their focus to unit economics and startups faced a challenging year with multiple regulatory challenges, layoffs, and corporate governance issues surfacing.

Despite the overall softening, a few areas continued to offer hope -- SaaS funding remained in line with 2021 highs, and early-stage dealmaking saw sustained momentum.

Going forward, while macro headwinds will continue to impact funding, 2023 may lead to the emergence of a more resilient ecosystem in the country, he added.

According to IVCA president Rajat Tandon, over the years, the alternative investment asset class has demonstrated remarkable resilience.

While 2022 marked a year that heralded PEs/VCs to adapt in the face of unprecedented challenges, it also went on to see record fund-raising and all-time high available dry powder.

This only reinforces global investor confidence in the country as one of the few growth bright spots.

"We remain optimistic about the long-term growth prospects of the industry and its ability to navigate uncertainties and identify opportunities," he added.

The report further noted that while the share of leading funds came down to 20 per cent from 25 per cent in 2021 following a slowdown in activity from global crossovers and hedge funds, traditional PEs continued to show interest in select growth equity deals and participated in several $100 million-plus deals, deepening the pool of growth capital available.

Micro VCs also grew in salience.

On their outlook for 2023, partner at Bain & Co Sriwatsan Krishnan expects 2023 to likely see the emergence of a more resilient ecosystem as stakeholders remain cautiously optimistic.

Investors are expected to double down on early-stage deal making in emergent spaces such as gaming (hyper casual games, e-sports), health-tech, EV, and AI-led use-cases likely to see interest.

(with inputs from PTI)