Is it Return of Dot Com Bust?
Date: Monday , June 06, 2011
It is raining sequels in Hollywood this year! Having experienced a successful run of the first installment of the movies, production houses are investing heavily with no holds barred in bringing out the sequels. But I do not think any internet entrepreneur would love to experience the sequels of Dot.com bust of the late 90s, which was fueled by greed-backed investment in over-hyped pre-IPO start-ups, largely created through the highly connected, private equity/ad agency machine that thrives so well in New York. Today, watching the Indian commercials by the e-commerce companies do not trigger in me any excitement about the hockey stick growth that they project but rather generates a concern whether it is the return of another dot com bubble.
Five years back, you may not have seen an internet startup advertisement on TV in India. Today most of the e-commerce companies like SnapDeal, makemytrip.com, Flipkart.com are spending millions on ads and are in a rat race to woo new users online. The spending which we see in branding is the outcome of the investors’ push in terms of quick expansion plans. Of course, they do have enough money raised in funding from the investors. This May alone, we witnessed investors funding over $40 million in Indian e-commerce sites like Exclusively.in, mydala.com, 99labels.com, RedBus.in and more.
A couple of years back, if a startup was trying to raise venture capital and promising an IPO in just a few years, they were considered unrealistic. But today it is possible and investors are betting high. Recent reports of high valuations of hot private companies such as the social networking site Facebook — valued at $50 billion in January — and online coupon site Groupon — valued at $15 billion to $20 billion in April — combined with LinkedIn's $9 billion entry into the market, itself notes the transition happening in the internet space. But are they betting bit steep, which really has to be given second thought.