buuble burst


Since early of this year, valuation of e-commerce companies in India are being debated for being ‘over-valued’. The debate first started when Ratan Tata, the scion of one of India’s oldest business houses, quoted that valuations of e-commerce companies are “very high” and now it seems that this over-valuation bubble is going to burst.

In a first instance of what could be seen as ‘Bubble Burst’, Mumbai-based real estate startup Housing.com has seen a plunge in its valuation from $400 million to less than $50 million, reported BusinessWorld.

A year ago Housing.com raised $100 million from Softbank and as a result it was valued at decent $400 million. As per few rumour mills – a large listings and classified business approached the company to buy them out for as little as $30 million which could possibly be Quikr.

Valuation is a monetary worth of something and a startup’s valuation is derived from a function of revenues and customer traction. And it is believed that Housing.com did not achieve either. Moreover, once the founding team was shown the door, the problem deepened.

The core of startup (over)valuation hype is that start-ups are surviving on VC/PE/angel money and not on its own earned profits. When that source eventually dries up, some will go belly up. Only those with business models that generate real cash profits will survive

Since last one year or so, there has not been any recent fund raising by Flipkart. The money is indeed drying up slowly and before long Indian startups will have to chase funds that compliment their business. High net worth individuals are the best bet these days to raise money from. Hopefully, the HNI rush to fund startups enables them to build great services, rather than building businesses that do not last, especially after raising huge amounts.

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In last five to six months, several instances have been seen where internet companies and investors have disagreed over valuations, forcing companies to raise capital from their existing investors.

Even so, investments above $50 million have increased from two in 2013 and 12 in 2014 to 25 till July this year, according to startup analytics firm Tracxn.



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