The dotcom boom of the 1990s fooled many investors into believing that the digital revolution would lead to an unending source of profit and revenue, but that didn’t stop them from learning many a hard lesson. Now, however, that newfound skeptical attitude is being applied to one of the fastest-growing regions in the world: India.
In a column for Forbes India, Editor Sourav Majumdar outlined the reasoning behind his stance that the market of fast-growing startups in India is more overvalued than the unicorn startups that have been plaguing Silicon Valley venture capitalists for the last several years. Citing businesses like Flipkart and Snapdeal that have made Uber-like strides in a short amount of time, Majumdar asked what could be a very uncomfortable question for an Indian economy solidly in a growth phase: Is the music that everyone is dancing to about to stop?
While Majumdar admitted that there are certainly “pockets of overvaluation” among Indian startups and the venture capitalists that follow them, Vinod Khosla, founder of Khosla Ventures, shared opposing thoughts at a recent conference with Nasscom 10,000 Startups, YourStory reported. Instead of predicting an imminent dip in India’s tech startup futures, Khosla instead said that, in his view, about 10 to 15 percent of new Indian FinTech businesses are actually undervalued.
However, this didn’t come without some harsh words of advice from Khosla to entrepreneurs who are just salivating at the capital being thrown around India at the moment. Khosla emphasized the need for detailed cost estimates, even if the amount of funding seems limitless. According to Khosla and Majumdar, Indian investors are starting to grow wary over pledging capital based on nothing but growth performance, and if startups can’t keep their costs under control before establishing at least a path to profitability, there may not be much more free-flowing capital in India to fall back on.