Startups

Tu Beer Hai – Startup Bubble is Bursting

Source | linkedIn : By Khalid Raza

It was my friend’s cute chubby daughter’s birthday party, almost one year ago and our group of friends, after dinner, were discussing the future of Indian Startup scene, while traffic on 100 feet road continued to create more noise and pollution but did not move an inch.

‘Tu Beer Hai’. What is that? Watch the video

Disclaimer: I believe in the potential of startups and as a consumer of many of them (For example: Uber, Inshorts, Flipkart, TinyOwl, Quikr, …and many more) I feel they have made a difference and are needed.

Yesterday I opened a nifty startup news app to read that Flipkart deferred (read declined) the joining of some very glossy IIM A MBA grads, to whom they promised hefty packages (and created artificial talent wars). While I understand that there is some internal structuring going on but a company which is leading the current e-commerce scene, not only in terms of losses, really has not gotten its act together. In April, Puneet Soni, Flipkart’s Chief Product Officer and expensive import from Silicon valley, left Flipkart within 14 months of joining.

Snapdeal and Flipkart have reported losses in financial year 2014-15. Snapdeal’s financial report revealed a loss of Rs 1,328.01 crore.  The highest loss reported last financial year was by Flipkart at Rs 2,000 crore.

2 days ago, Anand Chandrasekaran left Snapdeal. Anand, a former Yahoo executive, returned to India in 2014 to run product for the carrier Bharti Airtel. He jumped to Snapdeal last June, and led an effort to integrate more services, like Uber, into the company’s flagship app, a model similar to China’s popular WeChat.

3 days ago, Tiny Owl, another start up shut all his India operations, except Mumbai. Wonder why that was left. The Mumbai-based company was operational in 11 cities, including Delhi-NCR, Bengaluru and Chennai, but will now operate only in select areas of its home city. It laid off 160 employees in August. In November, it shut operations in four cities — Pune, Delhi, Hyderabad, and Chennai, and laid off another 100 employees.

Housing.com, which is backed by SoftBank and witnessed a management change after founder Rahul Yadav was evicted following a boardroom battle last year, posted a loss of Rs 279 crore on a revenue of Rs 12.7 crore, up from Rs 48.9 crore in the previous year.

Sulekha went to Rs 98.5 crore from Rs 80.9 crore, and AskMe’s revenues grew to Rs 43.4 crore from Rs 42.7 crore. Losses, however, went up massively, withQuikr and AskMe posting a combined loss of Rs 704.9 crore during FY15, up from Rs 380.9 crore in the previous year.

Zomato, which posted revenue of Rs 96.7 crore during FY15 had an employee cost of Rs 130.3 crore, while FoodPanda, with revenue of Rs 4.6 crore, had an employee cost of Rs 5 crore. Earlier this week, however, Zomato said it has reached operational profitability in six markets, including India.

Uff, stop it! So whats now?

The startup bubble is bursting!

Let’s understand what I mean here: The valuations have reached a bubble stage and are mostly inflated. Take this for an example: Mr A floats a startup to design a place where people will come and ‘ponder’ to generate world changing technology. The startup is called ‘iPonder‘. Mr A tells you that we will get 1 idea from each ‘Ponder Pod’ and every idea will be sold for $50k and hence we will be profitable in 2 years. We need $100k to make these ‘Ponder Pods’ in all the places where ‘Ponderers’ will come and ponder. You agree to invest as you have so much money that you don’t even know where to keep. You invest $200k and with projections for next 1 year you will have revenue of 50*12=$600k. That’s your inflated valuation.

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