If one were to believe every media report these days, India’s much-talked-about startup ecosystem would seem like a massive real life game of Monopoly being played by young entrepreneurs and venture capital funds with no mention of terms like revenue, profit or margin, which were once considered to be the most essential elements of a business.
On an average, there are reports of at least two startups getting funded and one being acquired every day. It’s been this way since months.
While startups may be “in constant need for funding”, as several participants in the ecosystem claim, my father, a first-generation business man who started with modest means and no VC-uncles almost 40 years ago, raised a point that seemed sort of valid to me. “It may be any generation and any industry, but there’s no business sense in a business that can’t sustain on its own inflows beyond the first three years,” he said. While I argued that he was from a far more conservative school of thought and it was all about risk-taking today, he countered me by citing the example of the 2008 global economic slowdown where India saved itself to a great extent because of its conservative nature. I did not have much of an argument to offer beyond that.
Even as I belong to the daring generation of risk-taking youth, if I take a step back and think, there is reason to worry.
Worry, for me, is not around the billions of dollars that are being sloshed into Indian startups, but around the fact that all this money is coming to a sector that does not even have clearly defined laws, regulator, ministry or watchdog. Indian laws and regulations predate the advent of the startup and e-commerce culture.
It’s a mix of ministries that oversee startups (corporate affairs, information technology, finance, etc). With several startups now playing in the banking and financial sector, the Reserve Bank of India has a role to play, too. With startups wanting to hit the stock markets, the Securities and Exchange Board of India (Sebi) has also been engaged with for certain issues.
But who is directly responsible for these over 3,100 startups (as per Nasscom data)?
In a recent interview with CNBC-TV18, value investor Rakesh Jhunjhunwala said the Indian e-commerce sector was in a bubble. While one may argue endlessly on whether it is or it is not, the fact is that there's no one actually to check.
The media, which in many cases plays a watchdog and has at several instances flagged key issues, is also helpless to a great extent with most financial information not being made available, since these companies are not publicly listed.
More upsetting is the fact that in the absence of any checks in the startup space, several media outlets also appear to be having a field day by making headlines out of rumours and speculations, which no one is questioning. As an entrepreneur recently told me: “When it comes to startups, it feels like media is being social media!” While I am totally for the freedom of the press, I have to confess that I do agree with her to some extent.