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Last week, an Indian startup announced a “seed” round of $40 million.

If this number doesn’t seem crazy in the current funding environment, the fact that this is for a nine-month-old startup with just 20 people might surprise you. And no, the startup doesn’t have any deep tech, a particularly unique idea or meaningful traction to speak of. 10club 10club TechCrunch 10club raises $40 million seed funding to build Thrasio of India Read more is a Thrasio Thrasio The Ken Mensa, Evenflow pitch e-comm brand aggregation to rigid Indian sellers Read more clone—an aggregator of e-commerce brands—playing in a crowded market with a dozen competitors, most of which are equally well-funded and follow a similar roll-up play.

While one could argue that this niche is an outlier of sorts, it is a fitting exemplar for a funding environment that is unprecedented both in terms of scale and scope. In many sectors, funding has been the main activity and the actual work has barely begun.

Publicly, people are celebrating these funding announcements but privately, there is a lot of head-scratching—bankers are wondering how these investments could possibly make sense.

These investments have become cause celebre, generating headlines that posit these as a sign that the Indian startup ecosystem has come of age. However, it makes sense to caution that these celebrations may be premature. While funding is important, it is, in a sense, the starting point of a race, where you equip a player with resources to compete and win. The endpoint signalling victory is different—namely, an exit. An exit marks the point where investors make money on their investments and founders win. Exits are the true measure of success for a startup ecosystem.

One big complaint about the Indian startup ecosystem has been its inability to consistently demonstrate large exits. Exceptions such as e-commerce major Flipkart apart, there haven’t been too many big exits in the last decade.

That, however, seems to be changing.

While the scale and frequency of startup exits is not as high as that of funding events, over the past year, they have shown a marked increase relative to previous periods.

Exits come in two forms—an initial public offering (IPO) or an acquisition.

At a time when public markets are at all-time highs, IPOs might seem both logical as well as likely. But startup IPOs in India are not comparable to those in the US. For one, there haven’t been many startups going public in Indian markets over the past five years. So, there is no guarantee that public markets will value startups as kindly as private investors, especially when these companies might not fit traditional valuation patterns around cash flow and price-earnings multiples.


Sumanth Raghavendra

Sumanth is a serial entrepreneur with more than eighteen years experience in running startups. He is currently the founder of Deck App Technologies, a Bangalore-based startup attempting to re-imagine productivity software for the Post-PC era. Sumanth’s columns appear regularly in leading publications. He holds MBA degrees from the Indian Institute of Management, Bangalore and Thunderbird, The American Graduate School of International Management, USA.

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