Why very few Unicorns from Hyderabad?

In 2021, India reportedly produced 40 plus Unicorns. But, hardly any from Hyderabad which boasts of one of the best ecosystems for start ups and entrepreneurship. Perhaps, a point to ponder for the high profile and pro-startup Minister for IT and Industries of Telangana, K T Rama Rao and experts in the area.

Hyderabad has one of the country’s largest incubators in the T-Hub, an exclusive incubator for women in the WE-Hub and the Telangana State government has put in place an acknowledged investment friendly industrial policy too.

In addition, there are the technology and management focussed, top class institutions like the IIITH, IITH, ISB and a host of CSIR labs, defence, space and life sciences Institutes to provide necessary support.

The State government too has created innovation-led entities such as RICH, TASK, TSIC and TWorks to further strengthen and broad base the cause of startup ecosystem. There has definitely been progress. According to a report, the number of startups launched between 2019-21 is 933. The total funding during the same period was approximately $515 million.

The Unicorn boom

The year 2021 saw hectic activities in the startup, entrepreneurship, stock markets and overall fin-tech and technology driven sectors. Consequently, a total of 42 unicorns emerged in the country with a approximate valuation of $ 82.1b, which is considered a record high. Coming on the back of subdued action during 2020 due to the  pandemic, the development is being viewed as a positive signal to propel accelerated growth.

ECommerce, fintech, software solutions and ed tech have been the four top areas for Startups, especially in investments, IPOs and acquisitions spaces. Some of the big winners were the food delivery company Zomato, Paytm, the digital payment firm and Nykaa, the eCommerce fashion company which were block buster hits at the stock market. Byjus, the Ed tech major did the biggest fund raising of over $1 b and made acquisitions.

A unicorn by a simple definition is a company that is valued at over a $1 billion. By notching up 42 such entities in 2021, India displaced the UK to occupy the third position in the world. According to the Huron Global Index for 2021, the US is the leader and China is second.

Within India, Bengaluru has the distinction of being at the top, followed by Delhi National Capital Region (both Noida and Gurugram fall in) and Mumbai. Overall, India has close to 80 unicorns and the number is expected to grow.

Why Hyderabad hardly figured in the list?

Hyderabad has the right tech context, very large base of techies, with good companies that they worked for. All these are good. But key piece missing is the product market experience much needed to be able to conceptualise the right products, says Ramesh Loganathan, Professor, Co-Innovation of the IIITH, which houses the T Hub.

This generally comes from people who have worked for startups or those who are very active investor-mentors. “With this missing in Hyderabad at present, most startups have to fumble their way through and lose precious runway–stunting their possibilities a bit. The first unicorn will be hard. But when we have our own Flipkart or Swiggy, that will spur a lot of very good startups-experienced angels, mentors, CXOs, founders, founding team members and more,” says Ramesh, who worked as Managing Director and Vice President (Products) of Progress Software.

The ecosystem is not fully matured in Hyderabad, though the state government is doing its bit. Innovation and ideas should be driven by startups, entrepreneurship and private sector. Further, the presence of VC funds, PEs, Angel Investors etc., has to grow larger to see more unicorns emerging from the city, feels, G Kali Prasad, President of the CEO Club and till recently member of the TiE Global.

Hyderabad also suffers from a perception problem and needs a niche area to build on. In contrast Bengaluru has developed a very conducive ecosystem over the past 25 years. Starting from IT it attracts eCommerce and consumer sector startups. Backing them are the funding groups. Similarly, Mumbai has emerged as the hub for fintech innovators and Delhi and NCR for Edtech and software, he explains.

Though the number of unicorns is small in the ‘new age and emerging tech’  areas, there are several in traditional ones like infrastructure, energy and life sciences, says Kali Prasad, who was Managing Partner, E&Y Hyderabad. A similar view was expressed by M Suresh Reddy, Chairman and CEO of Brightcom and former President of TiE, Hyderabad.

National Startup Day–looking ahead

The Prime Minister, Narendra Modi, who has been drumming up support for the sector with incentives and video meetings announced that January 16 shall henceforth be celebrated as ‘National Startup Day’.  He was interacting with over 150 startups virtually on Saturday as part of Startup India Innovation Week. He said, schemes like ‘Start-Up India’,  ‘Stand-India’, Make in India will ensure handholding of young innovators.

According to different estimates there are more than 80 Unicorns, especially in the tech driven space. Despite COVID-19, 2021 saw the emergence of nearly half of them. These are in the areas of fintech, eCommerce, edtech,  healthcare, food related, etc.

Experts opine that the momentum will continue or even accelerate during 2022 in the startup, investments and growth. Two major factors that are expected the drive this are the increasing VC/PE funding and also the positive sentiments in the capital markets that lapping up new IPOs (Initial Public Offerings). According to one study PE/VC firms invested in more than 600 start ups in 2021.

For example, the huge success of Zomato, PolicyBazaar, Paytm, Nykaa etc. are harbingers of the expected run in the new year too. There is a ‘hunger and enthusiasm’ in the markets for promising issues and investors are looking for opportunities, they say.

In addition to the existing areas, chip manufacturing, drones, electric vehicles, defence manufacturing, aerospace etc offer tremendous scope. Luckily, Hyderabad has good expertise building up in these sectors. It’s time for the government, funding agencies, tech organisations and the scientific community to join hands and improve the ecosystem to grow not just unicorns, but entrepreneurship in a wide range of sector from the IT centric now to generate employment and create wealth.

Somasekhar Mulugu, former Associate Editor & Chief of Bureau of The Hindu BusinessLine, is a well-known political, business and science writer and analyst based in Hyderabad