Info-tech

Is the 7-year start-up boom-and-bust cycle repeating itself?

Arun Natarajan | Updated on November 25, 2017

cycle

And why should entrepreneurs care?



At the dawn of 2014, ad industry executive Ramesh Srivats had jokingly predicted:

“Flipkart will get a few hundred million dollars from VCs in March, July, and maybe November.”

With Flipkart raising $1,000 million in July to add to the $210 million raised in May and spending (a reported) $300 million on Myntra.com in April, I wonder if Srivats was joking at all. If not, what numbers Flipkart will spring in November.

The billion-dollar deal making it to the front pages of newspapers along with new Whatsapp/Airbnb/Uber triggered waves from Silicon Valley, makes an (unfortunately) old timer like me wonder if “I have seen this movie before”?

Flashback

The star deal of the 2000-01 era was Sify’s acquisition of content portal IndiaWorld for about ₹500 crore. That “mega” acquisition was followed by companies with names like ChaiTime.com raising serious capital and portal Indya.com declaring name change for the country by taking over, for the first time ever, the front page of a leading national daily. Then HomeTrade.com ran TV ads featuring the biggest Bollywood and cricket stars.

Then, hedge funds – and even mutual funds – started to dabble in unlisted Internet company shares.

The party then ended where it all usually starts - in the US.

Time to hit the fast forward button.

To 2007-08. Record venture capital was deployed in India, including in companies with interesting names such as mginger, chakpak, guruji, minglebox and techtribe. While some went the ChaiTime way – a given in the world of venture capital -- the period also saw investors back companies such as InMobi, Justdial and RedBus, which turned into multi-baggers.

Then the global economic crisis, this too manufactured in the US, hit.

2014 has seen two companies whose names start with “chai” and “tea” raising more than a million dollars each. (Nothing wrong of course with either company per se. They just ended up triggering this old timer’s memories.)

New terminologies are being used to describe valuation metrics. Newer hedge funds are in town providing dollops of capital to privately held companies. Which is being splurged on advertising (e-commerce is already the second largest category among TV advertisers, behind only auto companies).

And one Bollywood star after another is jumping on to the e-commerce bandwagon.

Sure, there are a gazillion more Internet users in the country now than in 2000-01. Kids are born knowing to handle mobile phones and tablets. M-commerce is set to replace all other kinds.

The high stakes bets placed on finding “who the Amazon.com of India” is going to be – and the original itself being a strong contender – seem to portend interesting war stories to be told.

Whichever way the story pans out for investors, from the perspective of Indian entrepreneurs however, the best part about each “seven year start-up funding wave” is it has left the land richer - in terms of the availability of early stage funding and, probably more importantly, local success stories.

Newgen products

Just imagine going back to 2004 (when the nuclear winter of Venture Capital was still raging) and forecasting that in a decade:

MNCs like Microsoft and Paypal would incubate Indian start-ups for no equity stake in return

New investment firms – called Accelerators – would offer ₹10-15 lakh in seed capital and other value adds for single digit percentage stakes

Almost the first thing first generation entrepreneurs did with their capital upon exiting their ventures is to allocate a portion for start-up investments

The number of angel investors will grow steadily and include not only successful entrepreneurs, but also family businessmen and well-heeled professionals.

From now public companies such as Justdial and Naukri (which famously squirreled away the VC cash it raised just before the 2001 crash) to BharatMatrimony and redBus (which tailored Internet-based solutions to uniquely Indian contexts) to new generation products start-ups – such as Druva, Little Eye Labs and Freshdesk – which leveraged local venture capital to scale businesses globally, the number of local role models to inspire and emulate are now many and rising.

For old timers worried about the recurring “VC-fuelled bubbles”, I guess the best guidance is provided by Silicon Valley entrepreneur-turned-investor Guy Kawasaki at the end of the 2000 one: "Every day, I wish for just one more bubble because this time I'll know what to do!"

The writer is Founder of Venture Intelligence, the leading provider of data on private company financials, transactions and their valuations in India. Views are personal.

Published on August 25, 2014

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