BOOK REVIEW. Unicorns, angels and demons

In the spring of 2014, serial entrepreneur and angel investor Kashyap Deorah gets a call from a fellow IITian, and dear friend of his, asking for a loan. Deorah asks how much and why.

The answer shocks him. The friend wants to borrow a few crores to purchase shares in a hot startup that angel investors are selling. Deorah ticks off the friend, whose networth was probably just a crore, for wanting to make a risky bet on borrowed capital.

But that anecdote sharply brings home the crazy funding of Indian startups. Of how everybody wants a slice of the pie-in-the-high-momentum startups, and the lengths that people would go to.

Deorah’s page-turner of a book follows the golden tap of global funds that has been flowing into companies such as cab aggregator Ola, etailers Flipkart, Snapdeal, food and restaurant finder Zomato, and property portal Housing.com.

What had prompted deep pocketed funds such as Tiger and Softbank to write hundred million dollar cheques in early stage startups? Why were heavily bloated start ups raising more money — didn’t they have enough already?

Deorah asks and answers these and several more questions that we have had about the topsy-turvy Indian startup ecosystem.

And he tells the story well, starting at the very beginning — the Yahoo, Netscape, Amazon era of 1994 when Deorah was still debating whether to prepare for IIT-JEE.

In 1996, as Deorah is tackling hostel life at Powai, IIT-Bombay, halfway across the globe, three Indian PhD students — Ashish Gupta, Anand Rajaraman and Venky Harinarayan along with a serial entrepreneur Rakesh Mathur — were building Junglee as a transaction search engine. Junglee’s success and its eventual acquisition by Amazon is heady stuff.

And the story has a direct bearing on Deorah’s own startup journey as Rakesh Mathur arrives at IIT-Bombay looking to incubate new startups. There are other links too.

Deorah’s childhood neighbour Amit Agarwal who inspired him to join IIT is part of the Junglee/Amazon set-up, and keeps making appearances through the book, which takes you through the first dotcom boom, the bust, and the golden age of today.

The book is constructed in four neat sections.

Part one leads you through the first Internet wave of 1994-2002, the euphoria and the grief.

Part two surfs the globalisation wave of 2003 and 2009 and here you get to read fascinating tidbits about the funders — Tiger Global Management, Naspers, SoftBank, Rocket Internet and the method in their investing madness. Deorah calls it “this-of-that investment”. It also gives you inside accounts of the startup gold rush that is just beginning in India.

Part Three is the meat of the book — the here and now of how the eight Indian unicorns (startups valued at $1 billion or more) and the crazy conversations taking place among entrepreneurs.

Deorah reprises his meetings in coffee shops with people such as Bhavish Agarwal (Ola), Zishaan Hayath (of Powai Lake Ventures) bringing you insights into what the entrepreneurs and the angels are thinking.

Meanwhile, through Amit Agarwal, who is handpicked by billionaire Jeff Bezos to start Amazon’s India operations, we continue to follow the story of Amazon, the original expedition leader into the Internet jungle.

The pitched battle between Flipkart and Amazon through the eyes of the funders is riveting stuff. Deorah takes us through the speculations that Amazon would acquire Flipkart to enter India.

The poker table gets interesting when Softbank suddenly pumped in $75 million in Snapdeal making it a three-way game.

The way Tiger played the game is absolutely fascinating. Quite apart from its investments in Flipkart the way it controlled the ecosystem. For Tiger this was less a venture capital game and more a trading gamble.

But initially so overawed were the venture capitalists that they refused to touch anything that Tiger had rejected. It was much later that the VCs begin to think independently and change the balance.

The section on the Indian unicorns — created more through repeated funding than through organic growth — is also insightful.

By September 2015 there were over a hundred unicorns in the world, two thirds of them in the US, followed by China and India. Flipkart, Ola, InMobi, MuSigma, Snapdeal, Zomato and Paytm were the gravity-defying rocketships that had taken off.

But as Deorah points out, not all rockets make it into orbit; some burn and perish. So of course, we are treated to the infamous Housing.com story.

The final part of the book — Part Four where Deorah introspects on Where Do We Go from Here — is where the lessons are. That startups can fail due to overfunding rather than underfunding.

That you need to own the market to make profits. That we need more internet IPOs. It’s a book that gets at the heart of the irrational exuberance that consumes the Indian start up scenario.

And the best part is that it’s an insider telling the story like it is. A must read.

COMMENT NOW