Here's an extract from the Rise Capital Blog:
... the differences between China and India matter just as much as the similarities. We believe that there will be quite a few investors who get “burned” by buying at lofty valuations this time around who subscribe fully to the convenient idea that India is the “next China”, and that Internet companies there are the “____ of India” (fill in the blank with any successful Chinese Internet startup).Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to view our products list including the Free Deal Digest Weekly: India's First & Most Exhaustive Transactions Newsletter.
At Rise, we are eerily reminded of the rush of investment capital that flooded into Brazil a few years ago, with VCs believing that Brazil could also become the “next China”. At one point, the overnight flights from Kennedy (NYC) to Guarulhos (Sao Paolo) were packed with American VCs, startups were getting funded at a breathtaking clip, and early-stage valuations well north of >$100m were not uncommon. So what happened? A dip in the Brazilian economy combined with a realization by VCs that Brazil is actually quite different than China has created a much different dynamic. Foreign capital has dried up and the situation has returned to “normal” from a valuation perspective, and many of those startups (and the VCs who backed them) who participated in aggressive financing have found themselves on the wrong side of this dynamic.
Do we think India will go through a similar roller-coaster? For those who’ve been investing in India for a long time, this wouldn’t be unexpected, as there have been many starts and stops for Indian VC journey previously and there will no doubt be other hiccups in the future. At Rise, we think the smartest way to navigate such scenarios is to simply remain prudent when it comes to valuation. After all, as Warren Buffet once remarked, “only when the tide goes out do you discover who’s been swimming naked.”