The truth about the Indian startup bubble: is it happening?

Never in the history of the planet has so much wealth been legally created, said John Doerr, a venture capitalist.

The old economic theories of wealth creation that assert that wealth is a consequence of saving or investment or adequate public spending have failed to explain the phenomenon.

No, this was not classical economics. This was rather described as a well-stocked kitchen waiting for someone to come along and exploit its masterful ingredients to create a delicacy.

This was the Internet. The largest distribution channel in the world. Initially, only a few saw the potential. People like John Clark, the PayPal mob.

Others soon realized what was happening and flocked. Rejoice world, because the Promised Land is here.

People started riding the wave. New companies sprung up weekly with prefixes like ‘I’ or ‘E’ before their names.

They created a different category of business entirely. They were dotcom companies. Its business model was completely based on the Internet. Venture capitals were struggling to invest in them.

Everyone seemed to be doing what everyone thought. Look at that loser who just got a million dollar investment. Let me also start a company and add ‘e’ before the name.

Investors felt this was too good to miss.

A combination of rapidly rising stock prices, market confidence that companies would make future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook the traditional metrics in favor of basing trust on technological advances.

A bubble began to take shape.

In simple terms, a bubble occurs when speculators notice the rapid increase in value and decide to buy in anticipation of further increases rather than because the stock is undervalued. A bubble cannot be sustained for long because sooner or later the market’s self-regulatory mechanisms are activated.

March 2000. The dotcom bubble burst. In just one month, the Nasdaq index fell by several thousand units. It was an absolute market crash.

Fifteen years later, adjoining housing bubble and here we wonder if we did better this time.

The debate over whether we are experiencing a similar type of bubble today is raging again.

Some say that 2014 was the best since 2000 in terms of IPOs, while 2015 marked only a fraction of that number. A similar scenario happened in 1999 compared to 2000.

Some argue that we are in another bubble because the sum of tech IPOs and venture capital funding for 2014 amounted to $105 billion in equity funding, more than the companies funded in 1999, but less than the total. funded in 2000 (CBInsights), suggesting that if this trend continues, 2015 could end up like 2000.

A close observer will likely see that fast-connected and emerging markets like India seem to echo the Silicon Valley bubble.

Housing.com has laid off 600 employees. Compare the present to earlier days when Housing billboards used to be placed in almost every shopping mall in every metropolitan city in India.

Zomato is laying off 10% of its 3,000-employee staff worldwide, primarily in the United States.

The recent Foodpanda and Tiny Owl scandals filled the news. Tiny Owl’s founder himself was held hostage by his employees. The news would chill you to the bone as this is reminiscent of the meltdown days 15 years ago.

However, those fears are not rationalized by maintaining a one-sided gaze. There have been positive signs that headline makers pointing to the existence of the Indian start-up bubble should not be taken seriously. The startup ecosystem in India is still in a very emerging stage and those most exposed to these high priced private investment rounds are foreign funds with deep pockets and high risk appetite.

Recent cases of consolidation also show that the market is already self-correcting.

Grofers, a hyperlocal supermarket app that lets customers order goods from neighborhood stores online, last month made two acquisitions in a week, taking over closed competitor Town Rush and food delivery service Spoon Joy.

Car Trade, a Mumbai-based used car sales portal, has acquired rival CarWale for an undisclosed sum.

Why is it important to reflect on the existence or not of a tech startup bubble in India?

Entrepreneurs are entrepreneurs and will always run after the idea with the maximum potential.

On the other hand, venture capitalists have a much greater responsibility. They are the engines of effective capital allocation and are responsible for fostering innovation in vertical sectors, which have traditionally been dominated by laggards.

Good ideas and unique solutions in uncharted areas will always generate market and demand, which is the main concern of an investor, even if it doesn’t exist at the moment.

An accidental mouse on your plate can happen to a restaurant because it’s growing and scaling so fast, however, when you find a mouse on your plate every day, that opens up an opportunity.

Opportunity for second generation Indian entrepreneurs who rise from the ashes of the fallen, even more daring and much more severe and disciplined.

Just Buy Live, an electronic distributor that connects brands with local retailers, has raised $20 million in a series A while maintaining strict unit economic discipline. Here also comes Shabda Nagari, a Hindi-language social media portal, which just landed $1.7 million in angel investment.

The first round ended, many stumbled, and yet some took some rich coffins home. But the second round is about to start and some steam is already rising on the horizon. Take a seat ladies and gentlemen.