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Is the 7-year Startup Boom-and-Bust Cycle Repeating Itself?

By Arun Natarajan

At the dawn of 2014, ad industry executive Ramesh Srivats had jokingly predicted:

Flipkart will get a few hundred million dollars from VCs in March, July, and maybe November.

With Flipkart raising $1000 million in July to add to the $210 million raised in May and spending (a reported) $300 million on in April, I wonder if Srivats was joking at all. And, if not, what numbers Flipkart will spring in November.

The billion dollar deal making it to front pages of mainstream newspapers along with new Whatsapp/Airbnb/Uber triggered waves from Silicon Valley, makes an (unfortunately) old timer like me wonder if “I have seen this movie before”.


The star deal of the 2000-2001 era was of course Sify’s acquisition of content portal IndiaWorld for about INR 500 crore (small change by today’s billion dollar standards but “eye popping” was the descriptor used for it in those days). That “mega” acquisition was promptly followed by companies with names like raising serious capital and portal declaring name change for the country by taking over, for the first time ever, the front page of a leading national daily. Then ran TV ads featuringthe biggest Bollywood and Cricket stars. Then, hedge funds – and even mutual funds – started to dabble in unlisted Internet company shares.

Then the party ended where it all usually starts - in the US. 

Time to hit the fast forward button.

To 2007-2008. Record venture capital was deployed in India – including in companies with interesting names like mginger, chakpak, guruji, minglebox and techtribe. While some went the ChaiTime way (a given in the world of venture capital), the period also saw investors back companies like InMobi, Justdial and RedBus which turned into multi-baggers. (As they say, "Nothing Ventured, Nothing Gained.")

Then the Global Economic Crisis (again manufactured in the US) hit.

“This time, it’s different!”

2014 has seen two companies whose names start with “chai” and “tea” raising more than a million dollars each. (Nothing wrong of course with either company per se. After all, recent experience shows it’s a bad idea to disparage anything Chai. They just ended up triggering this old timer’s memories.)

New terminologies are being used to describe valuation metrics. Newer hedge funds are in town providing dollops of capital to privately held companies. Which is being splurged on advertising (e-commerce is already the second largest category among TV advertisers, behind only auto companies). And one Bollywood star after another is jumping on to the e-commerce bandwagon.


Sure, there are a gazillion more Internet users in the country now than in 2000-01. Kids are born knowing to handle mobile phones and tablets (there’s even a TV commercial featuring a new born researching Google to cut its umblical cord and shoot a “selfie” with the nurse). M-Commerce is set to replace all other kinds.

The high stakes bets placed on finding “who the of India” is going to be – and the original itself being a strong contender – seem to portend interesting war (and possibly aftermath) stories to be told. (Interestingly Flipkart’s $1 billion fund raise, which was followed the very next day by Jeff Bezos pledging $2 billion for Amazon’s Indian foray, coincides with the 20th year of the founding of

Whichever way the story pans out for investors, from the perspective of Indian entrepreneurs however, the best part about each “seven year startup funding wave” is it has left the land richer - in terms of the availability of early stage funding and, probably more importantly, local success stories.

Just imagine going back to 2004 (when the nuclear winter of Venture Capital was still raging) and forecasting that in a decade:

-          MNCs like Microsoft and Paypal would incubate Indian startups for no equity stake in return
-          New investment firms – called Accelerators – would offer Rs.10-15 lakhs in seed capital and other value adds for single digit percentage stakes
-          Almost the first thing first generation entrepreneurs did with their capital upon exiting their ventures is to allocate a portion for startup investments
-          The number of Angel Investors will grow steadily even if stock markets go nowhere for five years

From now public companies like Justdial and Naukri (which famously squirreled away the VC cash it raised just before the 2001 crash) to BharatMatrimony and Redbus (which tailored Internet-based solutions to uniquely Indian contexts) to new generation products startups – like Druva, Little Eye Labs and Freshdesk - which have leveraged local venture capital to scale businesses globally, the number of local role models are now many and rising.

For old timers worried about the recurring “VC-fuelled bubbles”, I guess the best guidance is that provided by Silicon Valley entrepreneur-turned-investor Guy Kawasaki at the end of the 2000 one: "Every day, I wish for just one more bubble because this time I'll know what to do!". 

Otherwise, you might have to wait another 7 years.

An abridged version of the above article was first published in the Emerging Enterprises section of The Hindu BusinessLine on August 26, 2014. Online link for which is here.

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