Unicorns #1: Financial Creatures

A short while back, Reliance invested $240 million in the Bangalore based delivery startup, Dunzo. With this, Dunzo’s valuation became $775 million. But what does the term “valuation” mean? It’s the cost of buying the entire company. For companies that are listed (i.e., bought and sold on the stock market), the answer is intuitive:

Valuation = Total number of shares x (multiplied by) Share price

 

But Dunzo is not a listed company (i.e., it can’t be bought/sold in the stock market). How does one value such a company? In such cases, one has to wait for a round of investing to happen. At that point, when someone pays Y amount for a Z% share of the company, you do the maths (if Z% is equal to Y, how much is 100% equal to?) to get the answer. That’s what we saw with Dunzo above.

 

Since we touched upon billion-dollar valuations for private, startup companies, it brings us to the topic of “unicorns”:

“A unicorn company, or unicorn startup, is a private company with a valuation over $1 billion.”

Note that by the definition, Nykaa and PayTM (or Facebook or Alibaba) are not unicorns anymore – they’re traded on the stock exchange now. How many unicorns are there? More than 900. The US has the largest number (487), China is next (170), and India is 3rd (55).

 

The list of Indian unicorns includes BYJU’s (educational app) - $21 billion, Oyo Rooms (travel, hotels) - $9.6 billion, RazorPay - $7.5 billion, Ola - $7.5 billion, and Swiggy - $5.5 billion, to name just a few of those 55.

 

How come India and China have so many unicorns? More than any European country, Japan, and South Korea? One reason is, of course, the population – with 1 billion people, even a 10% market share means 100 million customers. Secondly, both these countries are still growing and getting richer by the day, in turn driving demand for more consumer goods and services. Third, and I think this is funny when you think of it, the fastest and cheapest (in term of investments) way for a company to grow is if it is Internet + smartphone related. And yet, when it comes to the Internet and the smartphone, Europe, Japan and South Korea never got onboard. Sure, they use the Internet and smartphones, but weirdly, they’ve never formed any Internet giants. All of those come from the US, China or India. Find that hard to believe? If I ask you to name some Internet companies, all the names would be American (Facebook, Google, Amazon, Netflix, Twitter), or Chinese (Alibaba, TikTok) or Indian (Swiggy, Ola). Try naming a single European, Japanese or South Korean company. See the point? Which is so weird since in every other pre-Internet industry, you can easily name best-in-class companies from there (BMW, Sony, Samsung, Rolls Royce)…

Comments

Post a Comment

Popular posts from this blog

Why we Deceive Ourselves

In their book, The Elephant in the Brain , the authors describe this weird aspect of deception that we practice: deceiving ourselves! That is so weird: “If our minds contain maps of our worlds, what good comes from having an inaccurate version of these maps?” The Sigmund Freud school of thought treats self-deception as a defense mechanism, “a way for the ego to protect itself”. The mind seeks to protect itself from anxiety and other negative emotions. Many object to this reasoning: since accurate information is so critical to our survival, surely distorting information would be dangerous. Wouldn’t the goal of protecting our self-esteem have been better achieved by making the brain’s self-esteem mechanism stronger instead? The new school of thought explains self-deception as “primarily outward-facing, manipulative, and ultimately self-serving”. This is based on Thomas Schelling’s work on game theory: “In a variety of scenarios, limiting or sabotaging yourself is the winn...
Read more

Europe #3 - Innsbruck

The last city we visited in Europe was Innsbruck in the Austrian Alps. After the cold and windy experience (at times) of Paris and Netherlands, Innsbruck was a wonderful change – it didn’t feel that cold, it was not windy all of which made it easy to walk around. Something absolutely necessary given how scenic the place is.   Since the hotel check-in time was much later in the day, we left the baggage and went to the Swarovski HQ-cum-museum about an hour by bus from Innsbruck. The crystal exhibits were brilliant – colorful, bright, shiny. Jewellery aside, it was a display of what one can do with crystals. While my wife and daughter loved the jewellery, I liked the superhero themed exhibits of Batman, Spiderman, the Hulk, and Star Wars. We didn’t buy anything there, though we did buy stuff in the Swarovski store in Innsbruck – jewellery, not the superhero stuff.   Innsbruck is a major tourist attraction during the skiing season but now in summer, we saw many groups of ...
Read more

The Thrill of the Chase

So many people complain about the difficulty in making decisions while shopping. Do you buy Brand X that gives 20% extra free? Or Brand Y that has 10% off? Or Brand Z that gives something else free with it? Do you buy that flat screen TV today or wait for the sale at Diwali? Now since the customer is king, shouldn’t companies be simplifying pricing choices? Like maybe offering consistently low prices all the time? Not so fast, as the US store, JC Penney discovered to its cost. Turns out that while people do complain about pricing choices, they are irrational. Also, they enjoy the thrill of the chase. Huh? The word “sale” acts like a siren call for many people: it lures them in to make that purchase. Consistently low prices don’t do the same. Besides, if a competitor lowers their prices just one time of the year, and Poof! Suddenly that low price claim becomes suspect in shoppers’ eyes. Then there are those sites that offer coupons: have lunch at Restaurant A on Wedne...
Read more