Investor Mahesh Murthy is known for not mincing words. The co-founder of Seedfund says several businesses in India have been created with the idea of selling to industry giants, signalling greed of both entrepreneurs and investors. He is also least bothered about the valuation markdowns of some consumer Internet firms, saying it will clear the froth built around a few business models.
In an interview with Techcircle.in, he also said Chinese e-commerce giant Alibaba will change the contours of the Indian ecosystem, so much so that Flipkart, Snapdeal and Shopclues may no longer be the key players in the long run. Excerpts:
What do you have to say about the valuation markdown trend?
It's important to realise that these steep valuation markdowns are healthy for the Indian startup ecosystem. It's a welcome step from a long-term and fundamental point of view.
The truth is that there are 'real' entrepreneurs who are truly innovative and have solutions that are right for the market. There are also the get-rich-quick types—both founders and VCs—who have no fundamental insight but who believe they can jump on to some concept from the US, pump it up in India with big funding and high discounts while drawing huge salaries, and then sell the resulting mess to the overseas company when it comes to India.
The fact that Amazon has so far declined to buy its copy Flipkart, Alibaba has so far declined to buy Snapdeal and that Uber has so far declined to buy Ola, at least at the high prices they are quoting—and hence the steep fall in their valuations—is a painful but welcome jolt to the founders and financiers who were in the get-rich-quick mode.
This copycat bubble with its copycat heroes has exploded, leaving egg on the faces of entrepreneurs and VCs once lauded as heroes in India.
Will it impact investors' outlook on India or the way they perceive Indian startups?
Just like entrepreneurs, there are fly-by-night investors and more fundamental long-term investors. I believe India is better off with the latter.
For the former, the fall in valuation of topi companies [which fool others] is just a thoughtless bet gone bad, and they might either re-consider their approach to investing and India or move to the next topi target somewhere else on the planet to place their next bets. For them, it's not a big deal, as they make such bets every day. It's not something India should worry about.
India should focus on the long-term investors. It is a positive sign that the Indian market is fundamentally strong and healthy, and doesn't tolerate mindless bubbles. These investors will be encouraged by the prospect of a fundamentally strong digital-driven economy and the prospect for investing in differentiated and defensible startups at reasonable prices, and growing them over time in a sound and sustainable manner.
How will the entry of Alibaba impact the Indian e-commerce industry? Should players like Amazon, Flipkart be bothered?
The Indian consumer is going to be in for a treat with the upcoming Amazon versus Alibaba battle. It's different from the US, where Amazon rules, and China, where Alibaba rules. India will be the first major market where they have an opportunity to take each other head-on. The ultimate winner will be the consumer.
I believe Amazon has a bit of a head start, with what it's done in the last four years, but it's still early days. And like Amazon came four years after Flipkart and caught up with them, Alibaba can well do the same to Amazon in the next four years.
These are fundamentally different businesses though, with Amazon focusing on branded goods and customer service while Alibaba focuses on the strong Chinese production chain for less-branded goods and lower prices.
As far as Flipkart, Snapdeal, Shopclues and the like, I do not believe they will be key players going forward in India. Each of them will either be bought up and / or dissolved in some consolidation or end game play in the next few years.
How is the current Indian startup scenario in terms of investment opportunities?
It's a great time to invest in India, for three reasons. One, enough of the IIT and IIM mercenaries, both at startups and VC funds, have now understood that they cannot jugaad some idea from TechCrunch into India and try find a topi buyer for it. That trend is rapidly stopping—some of them are leaving for regular jobs, and others are 'considering options', as they say.
Second, this movement away from hump-and-dump founders is causing the light to shine on genuine life-time entrepreneurs with their plans built on real insights into the Indian market. Their ideas now have more chance of seeing the light of day. And these are likelier to become great companies five or 10 years from now.
And third, valuations have come down to reasonable levels again. No longer do we see clueless 22-year olds from Ivy League colleges asking for $10 million at a $50 million valuation, while giving themselves million-dollar salaries—and equally clueless VCs from the same colleges funding them.
We're now seeing a return to sanity, with much lower, more honest salaries being the norm, and smaller, more milestone-defined investments in fundamentally more different ideas than the 400th food delivery service, the 300th IoT startup and the 200th artificial intelligence bot company.