US-headquartered Morningstar on Thursday noted that the pace at which new unicorns are coming up in India is rapid and as many as 10 percent of all new unicorns across the globe are born in India.
The global investment research company introduced the Morningstar PitchBook Global Unicorn Indexes, including the Morningstar PitchBook India Unicorn 25 Index, a new series of benchmarks to daily measure Unicorns or privately held venture capital-backed companies with valuations of $1 billion or more.
Morningstar said in a statement that it determined only four countries have a critical mass of unicorns sufficient to create a meaningful single-country unicorn index. The creation of the Morningstar PitchBook India Unicorn 25 Index reflects local market conditions that are fertile ground for companies to remain private while they undergo considerable growth.
"The investment, consumption, and regulatory landscape in India is ripe for the growth of unicorns, as well as for upcoming unicorns, or 'soonicorns'. Active government support for India's start-up ecosystem, including its openness to foreign capital being invested, helps Indian startups secure funding while staying private," it added.
Behavioural changes towards technology and online consumer products brought on by the pandemic have created a favourable environment for innovative startups. And the size of the consumer market in India allows businesses to produce at scale.
Like the Indian stock markets that remained relatively resilient compared to global peers, Indian unicorns have also remained resilient. Despite the slowdown in 2022, Indian unicorns have seen some significant deals for companies. BYJU's, Swiggy, ShareChat and Meesho were among the many Indian unicorns that have successfully raised funding in 2022.
Another vital differentiator among Indian unicorns is that diversification has consistently increased among them. In 2019, the top 10 constituents of the Morningstar Pitchbook India Unicorn 25 Index comprised nearly 80 percent of the index, dropping to almost 60 percent in 2022. This is indicative of the increasing number of companies having large up-rounds.
B2C product and service providers such as BYJU's, Swiggy, OYO Rooms, and Ola comprise 60 percent of the Morningstar Pitchbook India Unicorn 25 Index. This is followed by a 25 percent weight in the Information Technology sector, including companies like Dream Sports and Razorpay.
According to Morningstar research, private capital markets have grown substantially in the last decade, with more companies staying private longer or pursuing less traditional funding strategies. This trend has fueled a growing number of "unicorns," or VC-backed companies with more than a billion dollars in valuation.
The company also added that this new series of market indexes combine the leading VC data, analytics and insights from PitchBook, an independent subsidiary of Morningstar, with the indexing best practices of Morningstar Indexes. It employs a proprietary three-factor mark-to-model pricing methodology to provide more frequent valuations for the asset class. The first of its kind, the model uses a range of valuation measures and comparable data from private and public market peers to bring transparency to an asset class that has been hard for investors to track.
Also Read: FUNDING RUNDOWN
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