India breaks China’s record of producing maximum unicorns in one year

India’s startup scene is turning out to be spectacular. 2021 was, by far, the best year for Indian startups. The country added a record number of unicorns last year. And this is pointing towards one thing- India could replace China as the country with the second-highest number of unicorn startups.

India added 44 unicorn startups in 2021

For a basic understanding, unicorns are startups valued at over US$1 billion. Unicorns represent the level of investments that are being funnelled into startups.

Now, India has a total of 81 unicorns, of which 44 were added last year. Investors are, therefore, looking at India and are trying to tap into the potential of the startups in the country.

Data compiled by Tracxn revealed that overseas funds invested over US$35 billion in Indian startups last year, a three times increase from 2020.

Why are investors flocking to India and giving up on China?

The investments being made into Indian startups are coming at China’s expense. Investors are giving up on China and shifting their investments into Indian startups instead.

Traditionally, investors have preferred China for putting their money into startup ventures. China has a total of 301 unicorn startups well ahead of India’s 81. However, China added 74 unicorns last year and the gap between new unicorns has narrowed down considerably.

At one point in 2021, it was being reported that India had left China behind in the unicorns race. In October 2021, it was reported that India had added 33 unicorns as against China’s 19 at one point.

But why are investors abandoning Chinese startups and getting bullish on Indian startup enterprises?

China’s crackdowns on tech sectors

Investors are noticing how Chinese President Xi Jinping is cracking down hard on the tech sector. Xi hasn’t even spared big tech giants like Baidu, Alibaba and Tencent. So, startups can easily get caught in the ongoing cross-fire between Xi and tech enterprises.

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Xi has a problem with all tech businesses including e-commerce, fintech, edutech and gaming. Both domestic and overseas investors now fear losing their money due to a Xi Jinping-led crackdown if they invest in a Chinese startup.

In the startups’ race, investors, therefore, channelled US$54.5 billion in Chinese firms in 2021, as against US$73 billion in 2020. Investors are pulling their money out of China and going to India.

The rise of India’s startup sector

China’s pain is translating into India’s gain. While investors are spooked by China’s economic downfall and rising uncertainty, they find assurance in India’s rising economy.

First of all, India possesses an enviable startup ecosystem with a pool of talented, well-educated entrepreneurs leading the startups. Big firms like Japan’s Softbank, which invested US$3 billion in India last year, are attracted by the country’s startups boom.

And secondly, India’s economy is in the middle of a dream run. It is all set to dominate the world economy with a healthy GDP growth rate leaving behind China and other major economies.

And India’s stock markets too are in the middle of an unprecedented bull run. This is why investors are flocking to India and are now dumping Chinese startups for Indian ones.