With the valuations of startups rising by the day and many leading investors like Ratan Tata and Vinod Khosla already questioning their astronomical pricing, Reserve Bank deputy governor SS Mundra also wondered whether the valuations are justified or not.
Making it clear that these are not the official views of the Reserve Bank, Mundra said, “rightfully or wrongfully, sometimes I worry whether it will be like a game of ‘pass the parcel’, and when the music stops, the last person will be left holding the parcel.”
“But I am not passing on any judgement nor are these the official views of the RBI. RBI does not have any official views on the matter,” he said.
Talking to reporters on the sidelines of a CII event here today, SS Mundra said the startup space is a powerful emerging trend and has seen a lot of success.
“But I have seen a few cases in the very recent time, that the startups arrived on the scene, got a lot of support from the moneybags, a lot of liquidity is available. There is a pressure on the promoters and the company to scale up too fast without creating the supporting control and compliance ecosystems,” he said.
There is a need to exercise some caution in this regard, he said.
“One thing, although I am not directly concerned with it, is the kind of valuations, though I do not question whether the valuations are right or wrong.
“If there is abundant liquidity available, it does not mean the required control or the ecosystem or the logistics should not be in the place,” he said.
Recently, Ratan Tata, chairman emeritus of the Tata Group, who himself has put in millions of dollars into over 15 startups, took a dig at e-commerce sector saying their valuations are “very high”.
Ratan Tata, who has put in lots of money into ventures like Snapdeal, Urbanladder, Bluestone, CarDekho and Kaaryah among a dozen others, also said “valuations” and not “evaluations” are driving the play now.
“It is true that valuations of e-commerce companies are very high and valuation seems to be driving these companies more than traditional matrix of evaluation,” Tata had said recently at a public function.
But he was quick to add that “it is similar to what has happened elsewhere and we ought to give these young entrepreneurs a chance to prove themselves shoulder-to-shoulder with traditional business.”
Noticeably, marketplace leader Flipkart, at over USD 15 billion, has not made a single penny in profit but commands more than double the valuation of the entire FGCG companies in the country put together.
Similarly, its immediate rival Snapdeal’s valuation reportedly increased by USD 1.5 billion to USD 5.5 billion in a matter of one month. Tax-hailing app Ola also commands billions of dollars in valuation.
The startup space attracted a whopping USD 5 billion in whole 2014, and about USD 2 billion between January and March this year.
Similarly, in a media interview, Silicon Valley investor and co-founder of Sun Microsystems Vinod Khosla, said the startup valuation bubble is being caused by bad ideas and copycats chasing money-making opportunities.
