No Need for Gloom & Doom: A Counterpoint

With strong fundamentals and momentum, the startup ecosystem in the country is healthier than many people believe.

Those who are worried about the state of India’s startup economy point to a few problematic signs – valuation (or over-valuation) of companies, many ‘me-too’ businesses, and market frothiness, to name a few.While this might mean that we are due for a correction, it doesn’t foreshadow impending doom. It also doesn’t mean that valuable and sustainable companies are not being built.

If one looks more closely at the startup space, it is clear that its fundamentals are in place. There are essentially six elements that make up the entrepreneurial ecosystem and are necessary for it to grow and thrive. First, we need motivated entrepreneurs with ideas that they are eager to get to market. The next level in the ecosystem consists of advisors, mentors and angel investors who can steer founders in the right direction and help them fine-tune their business plans. Next up are institutional investors for different stages of a company’s growth – from converting an idea into a business to scaling that business. New ideas and enterprises also need strong and deep local markets, spanning consumers and enterprises, to grow and scale.  Last but not the least, we need local investors who will support venture funds.

On many of the counts listed above, we have grown substantially over the last decade. Today we have many young adults willing to take risks and become entrepreneurs. We have a growing community of mentors and angel investors to nurture ideas until they are ready to take flight. And we have a large number of funds that support new enterprises across the spectrum of a company’s growth – from early to late stage.

Do we have the perfect ecosystem? No. But is it growing in the right direction? Yes.

The concern today is centered around funding of internet-related startups and the valuation of these companies. When a high tide comes in, it can be expected to bring in some creaky boards. While it is easy to characterize the many ‘me-too’ companies in a given space as a by-product of greed, it is also a trend that we have seen in almost every industry in every part of the globe. I come from a coastal part of Andhra Pradesh where, at one point, everybody was engaged in either shrimp or fish farming or rice cultivation. It didn’t matter that there were a hundred different providers offering the same product at the same level of servicing. Where there is demand, many will rise to fill it. Some will survive and others won’t.

This form of unrestrained competition is part of any growing economy. For now, it is good for the consumer. As we move along, we can expect some form of consolidation and settling to determine the ultimate shape and composition of the industry.

From my vantage point, I don’t believe that the typical ten-year investment window drives a short-term orientation based on ‘getting rich quick’. Investors don’t have the kind of overt influence in their portfolio companies that people believe they do. Our recommendations to them are just that and it is up to a given company to determine if it sees value in them.

I also believe that the way issues are framed in the business media is feeding into this negative narrative – both collective and individual – around startups. The media tendency to unquestioningly follow a reporting pattern has never been more evident than in the Theranos case where Silicon Valley’s tech media built up the company without questioning the underlying technology.

We are still growing at close to 7.5 percent in GDP terms and we have plenty of discerning consumers to keep businesses on their toes. Companies can turn this narrative around by keeping their heads down and doing what they do best. As long as a potential startup can clearly define the problem it is trying to solve and come up with an innovative way to solve it, there is no reason to hold back. And that, to me, is the essence of entrepreneurship.

Bharati Jacob is Founder and Managing Partner at Seedfund, a leading early stage venture capital firm.