Unicorns: Is Fundraising Frenzy signaling a Vibrant Indian Startup Ecosystem?

By- Managing Director, Jani Capital

Mensa Brands, a Direct-to-Consumer (D2C) firm, recently raised $135 million in Series B fundraising at a valuation of over a billion dollars, making it one of Asia's quickest unicorns. It achieved unicorn status within six months of its establishment. New approach to ecommerce, robust brand-building capabilities and digital first global brands from India obviously increased confidence of global and big investors in innovative products of Mensa, however it is also a fact that this fundraising frenzy needs to be seen in an entirety of present Indian startup ecosystem.

Unicorns on Fast track

In 2021, the Indian startup ecosystem welcomed 37 new members to the Unicorn club, attracting a total of $35 billion in equity funding. The world’s leading investors, including SoftBank, Tiger Global, Temasek Holdings, KKR, Jani Capital and Falcon Edge among others have been investing in Indian startups, churning out unicorns at a record speed and at eye-watering valuations.

More than 60 unicorns, or firms worth $1 billion or more, already call India home, with more than half of them joining the exclusive club this year. According to the VC Circle, many of these 33 unicorns, which have raised a total of $9.3 billion, have experienced a raise in value. For example, the value of Ofbusines increased from $1 billion to $3 billion in less than two months. The company raised a $207 million Series F financing on September 30, 2021, with SoftBank and Alpha Wave participating. Meesho, a social e-commerce business, had its valuation double to $4.9 billion in just five months. Recently, Girnar Software Pvt. Ltd's used automobile retailer CarDekho became the third firm in the market to reach a billion-dollar valuation since July. In the last six months, a number of companies in the ed-tech, crypto exchanges, fintech, payments, B2B marketplace, and social commerce sectors have also become unicorns.

India has become more tempting to international investors as a result of China's crackdown on tech enterprises. Founders who inspire trust, provide a niche solution, promise to scale since they are chasing a vast market with a digital back-end, and grow every quarter will continue to draw investors. Presently, global and big investors are in agreement that this fundraising frenzy is not yet a bubble. Who would like to miss an opportunity that is being offered by profit promising unicorns with large equity stakes?

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Mensa- The Fastest Unicorn in Asia

Mensa was founded in May 2021 with the goal of partnering with and investing in digital-first firms in fashion and apparel, home and garden, beauty and personal care, and food, and exponentially scaling them. Mensa Brands is the third unicorn in the D2C industry, following the Good Glamm Group and Licious. Mensa, on the other hand, is Asia's quickest unicorn by attaining the status within six months of its start. Through a combination of product and pricing optimization, technology-led process improvement, distribution and marketing augmentation, and supply chain fine-tuning, the startup shows a demonstrable uplift. Mensa Brands has raised $135 million in Series B fundraising, valuing the company at over a billion dollars. Mensa is looking to build a global tech house of brands and if they are really able to build a new age house of brands, investors are bound to get awesome returns. The startup claims that all of its 12 brands are growing at a 100 percent year-on-year and they are making all efforts to grow them as global brands.

Attracting Investors

Global investors are also in a rush to consolidate their position as the innovator and financial partner of choice for the rapidly growing startup ecosystem. Over the next two years, the fundraising frenzy is expected to continue. It would not be surprising that in this fund-raising frenzy startups including Mensa are bound to dilute founder holdings. Low founder holding will almost certainly come into play. Moreover, to justify a high valuation in the long run these companies must grow revenues briskly—year after year. In the long run, a failure to grow quickly or spending binges that don't result in corresponding revenue and profit improvements could depress valuations. Mensa brands also needs to be cautious on revenue and profitability fronts.

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Dilution of Stakes

In the latest fund-raising and unicorn frenzy, all B2B, B2C, and D2C startups stand benefited. But, funds always come with cost attached to it. As start-ups raise money in numerous rounds, whether to fund their expansion or to stockpile cash while it's cheap, founders are frequently forced to give up a significant portion of their equity ownership. Resulting in the founders’ stakes coming down to less than 25% and even less. It is not surprising to read media reports that say the founders of Vedantu, PharmEasy and Grofers all hold just 7-8% in the companies they set up. With low shareholding essentially founders pass on real control of the company and its operations to the investors. Indian Unicorns need to maintain a balance in terms of their growth, revenue, profitability, and shareholding

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