Lead Story

Bubbling over

Amid the flurry of investments in start-ups, failures are rising too. will this lead to more realistic valuations?

Illustration: Manish Marwah

British economist John Maynard Keynes once famously said, “The market can stay irrational longer than you can stay solvent.” Indian start-ups are learning this adage the hard way, with some paying the price for the irrational exuberance of investors. Making a beeline for start-ups, investors have pumped in $7.4 billion in 2015, up 57% compared to last year, according to Tracxn, a start-up intelligence platform. Start-ups such as OYO Rooms and Grofers raised more than $100 million in a year from investors like Softbank and Tiger Global, barely two years after starting operations. Amidst this barrage of money, people seem to have forgotten to check the inner mechanics, especially the core that businesses can’t sustain on bad unit economics.  The fall, thus, is going to be severe, says Ashish Gupta, senior MD, Helion Ventures, an early to mid-stage, India-focused venture fund. “Valuations are going to be reset in India because we have priced ourselves ridiculously ahead of the market size.”