“It is great that Indian startups are going through this funding boom. But they will need to find sustainable business models, which make a lot of money, in order to survive,” said Radhika Gupta, CEO of Edelweiss Asset Management Limited. “Even a Google or an Amazon cannot survive on customer numbers alone.”
First, the good news
The pandemic, meanwhile, has encouraged people outside of major cities to spend money online, speeding up digitization of businesses and opening up more opportunities for technology entrepreneurs.
The venture capital firm also found that the time it takes for a tech startup to reach a $1 billion valuation has shrunk dramatically, from nearly 15 years in 2005 to 2.4 years in 2016 and 2017.
Risk of bloat
Some experts, though, have started questioning how much money big investment firms are pouring into the sector.
“They over-capitalize the company by giving 1.5 times or 2 times the amount needed,” said Amit Ranjan, co-founder of presentation-sharing service SlideShare. He’s now working with the Indian government on a virtual locker project called DigiLocker.
“There is no justification for this except to bludgeon the competition,” Ranjan told CNN Business.
But Rehan Yar Khan, managing partner at Orios Venture Partners, doesn’t see the influx of money as a “big worry.” After all, companies still need massive amounts of capital to capture the potential of India’s vast market.
He cited PharmEasy, an online pharmacy firm, as an example. Khan was an early investor in the firm, which became a unicorn earlier this year.
“E-pharmacies have covered only 3% of India’s market,” Khan said. “… So naturally they need more money to grow.”
But there are other headaches to consider, too. What happens if a unicorn becomes over-funded and fizzles before it has an exit plan?
Only a handful of Indian tech firms have held listings over the the last two decades. And no tech startup worth more than $1 billion has gone public.
“By inflating valuations in the private market, you are postponing your ability to go into the public market,” said Karthik Reddy, co-founder of venture capital firm Blume Ventures. He believes that Indian firms have to think about initial public offerings sooner rather than later in order to build a sustainable startup ecosystem.
“We don’t have large tech acquirers, so you can’t wait for a Walmart to come and buy your biggest asset every time,” he added.
Could this be the year?
There are murmurs in Indian tech circles about huge upcoming exits. Reddy is optimistic that 2021 may be remembered not just for its funding boom, but also for bringing about a cultural shift in the industry.
“India needs to unleash its tech firms on the public market,” he said. “Right now Indian citizens have hardly any exposure to the unicorn boom.”