India's Startup Bubble: Separating Myths from Facts

The Indian startup ecosystem is in an interesting phase: doomsday scenarios and rosy projections for India's startups are a dime a dozen. But the truth probably lies somewhere in between, with time and consumers being the only true judge and jury for India's tech pioneers.

To present a data driven image of the landscape, we took 10 popular startups and compared their valuation to their most well known international peer. This is the first time the data has been aggregated like this, and the results paint an interesting picture of the Indian marketplace. Our key insights from the analysis are presented below:

1. Some Indian Valuations are Globally Competitive

Snapdeal, Ola, PayTM, Quikr, and InMobi are valued in line with their international peers. While this fact alone does not absolve India of the bubble argument, it does indicate that there is a mature market path to justifying the valuations.

2. Other Valuations are Inflated, Demanding 2x Growth

Zomato, Practo, Oyo Rooms, and Grofers seem relatively richly valued. While there are other factors to consider like age, growth rate, sectoral maturity, and leadership premium, these startups will have to double their base metrics every year for 4, 6, 2, and 8 years - respectively - while fending off competition in order to come in line with peers.

3. Success of Tech in India is in Growth, not Profit

None of the startups are profitable, but this does not count as an insight, does it? With mature market peers of Flipkart/Snapdeal, PayTM, and InMobi generating an EBITDA margin of 6%, 22%, and 33% respectively in CY2014, one can see some light at the end of the tunnel. The billion dollar question is what comes first - profitability or bankruptcy? Interestingly, these exact startups are also competing directly with their international peers in India which is not the case with others.

4. India's Key Metric: Gross Merchandize Value

In case of 50% of the startups, the base metric is Gross Merchandize Value (GMV). Roughly, revenues are 5-20% of the GMV i.e. the net revenue multiple are 5-20 times the GMV multiple. E.g. Grofers' net revenue multiple is 2,250-9,000x depending on the % share of merchandise value used.

5. 25-35% of Valuation is Actual Cash Funding

Ola, Zomato, and InMobi remain the exception on the lower side. These founders have also managed to retain a major ownership stake in their organizations, unlike some popular fledgling startups.

6. Indian Startups are Aggressively Entering Competing Verticals

These startups are not sitting pretty on their laurels. They're actively entering each others' space in search of more revenues, profits, and a justification for lofty valuations. For example, Ola to grocery delivery (Grofers), PayTM to E-commerce (Flipkart/Snapdeal), Zomato to food ordering (TinyOwl/Swiggy), or Quikr to real estate (Housing.com).

7. The Giants are Not Immune to New Entrants

Although these firms are well funded, the waves of competition have not stopped. Firms targeting niches are upstaging the heavyweights at their own game. For example, FabFurnish/Pepperfry in E-commerce, Jugnoo/Shuttl/Bla Bla Car in transport, or HolaChef in online ordering. For a lot of these startups, the ultimate goal is to be acquired by one of the larger players.

Will we see a new wave of M&A or consolidation soon?

Source: Company websites, Crunchbase, Wall Street Journal, Economic Times, Financial Express, The Hindu, Business Insider, Yourstory, Inc42, internal analysis.


    Great Summary Siddhartha. As part of PAN IIT event in US, I along with few volunteers (current IIT students) put together a research about IITians & the companies founded by them. The focus was mostly on recent startups while we added few known established ones tool. As it was summary, we picked the few in every industry and data was as of April 2015. Have a look.

    Reply 2

    I really loved the data driven approach of your article. I legitimately think this is the first time this kind of overview of the Indian market compared to the US market has been done from a startup context. Really fresh reporting - thank you!

    Reply 2

    Thanks for your kind words Michael. The only way to separate opinion from facts is through data and hopefully this article helps move the discussion forward. It would be interesting to see the comparison of these startups with more traditional players e.g. Flipkart vs. Walmart to understand the e-premium as well as possibly long-term trajectory.

    Reply 0

    Well, on the Walmart front, the company appears to be doing its best on the innovation front - at huge costs.

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    Reply 1

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    Reply 0

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