Indian startup scene is pretty interesting in the sense that from one perspective the scenario seems rosy and from other it looks more like a bubble. Thousands of startups have mushroomed and hundreds of them have got millions of dollars funding. Policies are being made by successive state governments to boost the startup ecosystem. It seems elephant has finally shed it weight and ready to dance. India seems to be finally gearing up to unleash its raw energy.
All this sounds great. Entrepreneurs are basking in the new found popularity. But this is reminiscent of the 1998-99 of technology boom. Unlike many of those youths who have not seen those times can’t understand this which is also but natural. It’s a sure sign of a bubble.
Everybody is just trying to become a startup owner. It has taken a form of collective paranoia. When so many people chase similar things, valuations are bound to be peaked.
Sharad Sharma, a respected Indian startup mentor feels that the promise of this El Dorado will ultimately peter out. Sharad has also founded a think tank iSPIRT (Indian Software Product Industry Round-Table). Experienced VCs have started becoming worried as the process of identifying a leader has become difficult. They have started asking uncomfortable questions from these startups.
Sharad puts it in the perspective by comparing it with engineering entrance exams that appear to be highly competitive prima facie but actually of 500,000 odd students only 5000 students are worthy to be selected which is just 1 percent of the crowd. It benefits nobody except coaching institutes.
He further says, “The rest are basically zombies. The trouble is that they don’t know they have no chance in hell. They are wasting their own time and everybody else’s time. The only beneficiaries are the test prep centers who are milking them. That doesn’t solve the country’s problem.”
Y Combinator president Sam Altmanin his recent blog revealed that out of 500 odd-startups they funded only 40 startups crossed $100 million mark. In India, the number will be even much poorer to this.
A major reason why Indian startups fail to create world-class companies is because they are frog in the well. They remain contended with their small success.
“For example, Malleswaram has no Italian restaurant, so you could open an Italian restaurant in that area. That’s dhanda. You have a business idea and a viable kind of a company. “There are two ways to go from there,” says Sharad. “One is to have that kind of a company and be happy with it. I have one restaurant, I make it bigger and profitable, and then I build another one, and another one.”
He goes on saying, “The other type of startup is that I will do all that, but I also want to dominate my space. That’s when you face serious resistance. And you now need a game plan to dominate your category.”
Paras Adenwala, an investment consultant at Capital Portfolio Advisors, are concerned because people are just seeing a few success stories. The bubble has started bursting as TinyOwl, a Powai-based startup laid off 300 employees, Zomato and Housing.com have also decided to lay off their employees.
Ratan Tata, Emeritus Chairman Tata Sons, also said that valuations of some of the e-commerce companies are crossing the traditional metrix of evaluation.
Housing.com, once the darling of Indian VCs that had raised $400 million was offered only $50 million. That’s because it lacked a sustainable business model. Many more startups will fail like this.
None of the famous startups in India are profitable. Companies like Zomato, Practo, and Grofers seems to be overvalued. It will be interesting to see what will come first: Profitability or bankruptcy?
(Source: Techinasia, Economic Times and Startupgrind)