Desi startup valuations face scrutiny

Weighed Down By Bubble Talk As M-Cap Of Listed Peers In US, China Falls
The valuations of privately funded Indian startups have come under scrutiny , after a sharp drop in market capitalization of similar new-age ventures in the US and China over the past few months. These overseas listed counterparts often form the benchmarks for valuations of the Indian ventures.Restaurant search and review venture Yelp is valued at about $1.7 billion, a significant drop from close to $6 billion a year ago. The company , which reported a revenue of about $400 million for the full year ended December 31, 2014, is now struggling to win advertising revenue in a crowded market.

That’s raising questions about the valuation of restaurant search and review website Zomato, Yelp’s Indian counterpart. Zomato, with barely $25 million in revenue, was valued at over $700 million, some say $1 billion, in its last round of fund ing. However, going by Yelp’s latest valuation and the difference in revenue between the two companies, analysts say Zomato’s valuation cannot hold.

Similarly, Chinese e-commerce giant Alibaba has a market capitalization of about $172 billion currently , down from erence is significantly more $231 billion, when it went public in September. Alibaba was also hurt by tepid revenue growth, which rose at its slowest in over three years in the first quarter of this year. The Jack Ma-led company reported revenue of $12.3 billion last year.

Such numbers suggest that Flipkart’s valuation of $15 billion, with revenue at an estimated $800 million, and Snapdeal’s valuation of $4.8 billion in their last rounds may be excessive. Mobile payment processor Paytm is valued at about $2 billion, with annual revenue of about $50 million, while its closest global counterpart, Paypal, has a market cap of $41 billion with revenue of $8 billion annually . In all these cases, the valuation differences are significantly narrower than the revenue differences.

“This is definitely a bubble and this kind of valuation is happening because of the assumption that the Indian market will be similar to China in terms of size,“ Sharad Sharma, co-founder of software product association iSpirt, told TOI.Sharma added that the copypaste companies of India will ultimately face tough competition from the original players, while China’s protective environment does not allow the original players to operate. “People are assuming perfect execution for many quarters consistently . But in India, perfect execution is not at all common. One adverse incident can upset all calculations. But it is easy to sell perfect execution stories to certain global funds,“ said an investor who spoke on condition that he would not be named.

However, Sanjay Swamy , managing partner of seed stage venture capital fund Prime Ventures, said valuations are not based on fundamentals for early stage investments. “The investors look for potential, the rate of growth and the headroom for growth. So the Indian ventures cannot be compared with global companies that have gone public,“ he said.

Swamy added that the valuations of Indian companies tend to be higher also because India is the last big market. And with its stable democracy , the country , he says, makes for an ideal location among other emerging market competitors.

Source: The Times of India

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Neeraj; an entrepreneur & a visionary in the field of Railway, Defense & Automobiles, is a graduate in commerce and a Harvard Business School Alumni. He’s an expert in govt. liasoning & contracting and has an exceptional network & connections at both local as well as global level. He’s an expert in Market Strategy & Planning and has served number of overseas companies as an advisor/consultant. He takes a profound interest in upcoming startups & is very receptive towards ground-breaking ideas & innovations. He likes to brainstorm those ideas and if the values & philosophies matches; he is even ready to invest his resources, serve as a mentor or act as an incubator to futuristic businesses.

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