Early Signs of Startup Bubble May Prompt PE Funds To Go Slow On Funding

The age-old proverb - “All that glitters is not gold” - fits perfectly well when it comes to the startup ecosystem that has been abuzz with activity over the past few months.

Hordes of activity, renewed investor interest and needless to mention, some great innovative ideas – prima facie, it seems to be one big party going on for early stage ventures. Or, so it seems! However, in reality the ‘so called hangover’ may have begun with the first signs of an impending shakeout already visible with firms adopting measures to curtail their expansion plans as they find it difficult to scale up their businesses and take them to the next level.

Result? Well, they are obviously adopting various measures to keep their bottomlines intact which also includes retrenchment. Already, a handful of early stage ventures have been in news of late for not so positive news. For instance, TinyOwl, Housing.com and, for that matter, even Zomato are increasingly resorting to layoffs which have left many executives in the lurch.

While these firms are still running and operational, there are others who have been forced to shut down shops like Dazo, Talentpad and DocTree. Now, what is noteworthy here is the fact that ventures who were once in news for attracting capital are also the ones who are suddenly facing the heat and this is way too contrary to what the investors and even the government had expected of them.

The government on its part is definitely betting big on the country’s new entrepreneurial landscape and is taking significant steps to bolster entrepreneurship. In fact, one its campaigns "Start-up India, Stand up India" that was announced earlier in August was in itself to a move to give a new dimension to entrepreneurship in the country and facilitate a network of start-ups pan India. After all, the more number of companies, better the prospects of a nation – ideally it should mean bigger revenue, bigger innovation and bigger jobs.

However, in this case, when there are so many startups mushrooming at the same time with some of them actually chasing money-making opportunities and leading the so-called boom, the question is naturally on their ‘sustainability model’.

So all in all, with the first signs of the shakeout already visible especially across certain sectors such as food tech which has been the worst impacted so far, investors may just want to adopt the ‘wait and watch’ policy instead of pumping in hordes of capital in them. After all, the true test of a these ventures will come in only after an investor exits them with profits. And this is certainly not to say that all of them will fail. Going forward, there are certainly certain ventures that will make it big. And for those who don’t, well, time will tell. Either they will be grabbed by the bigger ventures or they will have to shut down shop!