This post is by Hitendra Chaturvedi, Founder & CEO, GreenDust
These days, the start-up ecosystem in India has hunkered down. News of value markdowns, funding scarcity, layoffs, and shutdown abounds. It is a bit comical to see how quickly the sentiments change. Maybe it is an offshoot of an ecosystem that is trying to find its feet, or maybe the sector is not learning lessons from the previous years. Perhaps it is greed or the opportunism; maybe it is the herd mentality leaving the visionaries in the field at a disadvantage.
Maybe it is none of the above or maybe a confluence of all of the factors mentioned above. One thing is for sure, like a car that is having fits and starts these hiccups in the Indian start-up ecosystem are giving serious heartburn to all involved.
Lessons from the Silicon Valley
It was the year 2000 when the bubble of irrational exuberance burst in Silicon Valley. This ‘Mea Culpa’ brought the Silicon Valley to its senses and since then, all of its stakeholders have done their best to create a stable environment where companies like Facebook, Airbnb, Uber, Twitter were nurtured and launched. Interestingly, VC investment never touched the irrationalities of 2000 but has created more value than all the years leading up to 2000.
Looks like we have not learned that lesson yet. Somehow we seem to be on a roller coaster of irrational exuberance and irrational depression that is causing irreparable damage to the delicate ecosystem.
There are three big culprits in this constant see-saw are – Entrepreneurs, Investors, and Media.
The biggest disservice to this ecosystem was done by the likes of Tiger and Softbank who threw so much money around that it completely screwed up everyone’s expectations. The local Indian investors became a spectator, as they could not compete with such capital. Apart from a few cautionary voices, most investors went along for the ride on the coattails of the “biggies,” not questioning the rationale of certain investments or valuations. It was a herd mentality that invested in “flavor of the month” business models including e-commerce, marketplace, hyper-local, mobile, big data, fin-tech, etc.
The second actor, the Indian entrepreneur, who had never seen so much money flowing in, went berserk, and in many cases causing irrational behavior for short-term gains. Many, albeit not all, jumped in to “make a quick buck” race, rather than build another Google or Facebook. Working for start-up was “cool” and with big money, came dizzying compensation that spoilt the Indian workforce.
Finally, the media went on a feeding frenzy, invested heavily in start-up assets, and lapping everything start-up. Gossips became news; fake stories changed public perception, entrepreneurs and investors used media as a tool for valuation and funding hyperbole.
And when the things turned bad…
When times turned bad, “fly-by-night” entrepreneurs, having already made their money by manipulating both, the investors and the media, hastened an exit. Large investors pulled out and so, the smaller ones were left like a deer in a headlight. After investing such a large asset base to “start-ups,” the media went into a feeding frenzy and even “inventing” stuff that did not exist.
In all of this, the poor entrepreneur who actually had a real business model got creamed. It is akin to “throwing away the baby with the bath water.” As the funding dried up, great business model and exceptional entrepreneurs risked facing a shutdown.
I am not sure if we will conveniently forget all of this in the next cycle like the movie “50 first dates” and are destined to repeat the first date and the first breakup, over and over again.
So, what to do?
Investors must invest in a business model that they believe in. After having invested in a business following careful invigilation, the investors must stick with their decision through thick and thin. Guide and mentor the people running the business, get involved, drink it, eat it sleep it, and help create an ecosystem around your investment.
Entrepreneurs – build because you love to build, because, as Steve Jobs once said “make a dent in the Universe,” and not because of the money and not because of the exits or ego.
Media – don’t push out any more stories simply because you have to write one up. No more “fake” stories, no more gossips. Ours is a very fledgling ecosystem that needs nurturing and responsible reporting.
Although there is one silver lining in all of this – true, gritty entrepreneurs will emerge from this ‘trial by fire.’ These entrepreneurs that will survive the roller coaster will be the true champions of the Indian start-up ecosystem.