Mumbai: Hundreds of layoffs at several Indian start-ups have sparked fears that the bubble is starting to burst for the country’s e-commerce companies, amid claims by analysts that many of them are overvalued.
Restaurant search website Zomato, food delivery app TinyOwl and property portal Housing.com are all letting staff go, and experts are warning of echoes of the dot-com boom which crashed spectacularly in 2000.
“The valuation bubble is bursting. The valuations had reached levels where they were ridiculous and could not be justified at any level,” said Arvind Singhal, chairman of management consulting firm Technopak.
Wealthy investors boosted by low interest rates have been lining up to lavishly back India’s booming start-ups, with the government hailing the sector as proof of the country’s entrepreneurial spirit.
PM Narendra Modi views online start-ups as key to providing jobs to aspirational young Indians, seeking to fuel the sector through a government campaign, “Start up India, Stand up India”.
In September, he visited Silicon Valley calling on deep-pocketed investors to turn their attention to India’s thriving start-up ecosystem, with large tech hubs in the cities of Bangalore, Hyderabad and Mumbai. Yet despite the billions of dollars invested, most of India’s online start-ups are yet to turn profitable.
Investors’ push hurt start-ups
Pressure from investors is the root cause of startups being pushed to the wall as they are being forced to scale up operations too fast, says media entrepreneur and UTV Group founder Ronnie Screwvala.
“Several start-ups have had to scale back operations lately. It is not an ecosystem issue, but plain silly investor pressure to have a multi-city strategy that is creating these problems,” Mr Screwvala, who is now leading seed fund Unilazer Ventures, said.
The start-up space has been attracting billions of hot money from scores of PE firms and other foreign investors like SoftBank of Japan and Chinese online retailer Alibaba, jacking up values within months. A whopping $14 billion got pumped into the country’s start-ups in 2015, though the tap has not yet turned dry.
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