The truth about the Indian startup bubble – is it happening?

Never in the history of the planet has so much wealth been created legally, said John Doerr, a venture capitalist.

The old economic theories of wealth creation, which held that wealth came as a result of saving or investing or appropriate government spending, failed to explain the phenomenon.

No, that wasn’t classical economics. Rather, this has been described as a well-stocked kitchen waiting for someone to come and use its masterful ingredients to create a delicacy.

That was the internet. The world’s largest sales channel. At first, few saw the potential. People like John Clark, the PayPal mafia.

Others soon realized what was going on and flocked. Rejoice, world, for the promised land is here.

People started riding the wave. New companies emerged weekly with prefixes like “I” or “E” in front of their names.

They created a whole different category of company. They were dotcom companies. Their business model was entirely based on the internet thing. Venture capitals struggled to invest in them.

Everyone seemed to be doing it, everyone thought. Look at this loser who just invested a million dollars. Also, let me start a company and put ‘e’ in front of the name.

Investors felt this was too good to pass up.

A combination of rapidly rising stock prices, market confidence that companies would generate future profits, individual stock speculation, and widespread venture capital created an environment in which many investors were willing to overlook traditional metrics and instead rely on technological advances.

A bubble began to form.

Put simply, a bubble forms when speculators see the rapid rise in value and decide to buy in anticipation of further appreciation, not because the stock is undervalued. A bubble cannot last long because sooner or later the self-regulating mechanisms of the market will kick in.

March 2000. The dot-com bubble burst. In just one month, the Nasdaq index fell several thousand units. It was an absolute stock market crash.

Fifteen years later, adjoining real estate bubble and here we are wondering if we did better this time.

The debate as to whether we are witnessing a similar type of bubble today is on again.

Some say that 2014 was the best since 2000 in terms of IPOs, while 2015 marked only a fraction of that number. A similar scenario happened in 1999 compared to 2000.

Some argue that we are in another bubble because the total of technology IPOs and venture capital funding for 2014 totaled $105 billion in equity funding, more than the companies funded in 1999 but less than the total that was funded in 2000 (CBInsights), suggesting that the trend continues, 2015 could end like the year 2000.

A keen observer is likely to recognize that emerging and rapidly connecting markets like India mirror the Silicon Valley bubble.

Housing.com has laid off 600 employees. Compare the modern day to the old days when residential building billboards used to be seen in almost every mall in every major Indian city.

Zomato is laying off 10% of its 3,000 employees worldwide, mostly in the United States.

The recent Foodpanda and Tiny Owl scandals filled the news. The founder of Tiny Owl himself has been held hostage by his employees. The news would chill you to the bone as it resembles the days of the collapse 15 years ago.

However, these fears cannot be justified with a one-sided view. There are positive signs that headline makers suggesting the existence of an Indian startup bubble should not be taken seriously. The startup ecosystem in India is still in a very nascent stage and those most exposed to these high-priced private investment rounds are foreign funds with deep pockets and high risk appetite.

Recent cases of consolidation also show that the market is already in the process of correcting itself.

Grofers, a hyperlocal grocery app that allows customers to order goods from corner stores online, made two acquisitions in one week last month, taking over defunct competitor Town Rush and food delivery service Spoon Joy.

Mumbai-based Car Trade, a portal for the sale of used cars, has acquired its competitor CarWale for an undisclosed sum

Why is it important to think about whether there is a tech startup bubble in India or not?

Entrepreneurs are entrepreneurs and they will always pursue the idea with the maximum potential.

On the other hand, VCs have far greater responsibilities. They are the engines of effective capital allocation and they are responsible for fostering innovation in industries traditionally dominated by laggards.

Good ideas and unique solutions in unexplored areas will always generate market and demand, which is an investor’s main concern, even if there is none at the moment.

An accidental mouse on your plate can happen to a restaurant because it’s growing and scaling so quickly, but finding a mouse on your plate every day opens up an opportunity.

Opportunity for second generation Indian entrepreneurs emerging from the ashes of the fallen, even bolder and far more rigorous and disciplined.

Just Buy Live, an e-distributor that connects brands with local retailers, has raised $20 million in a Series A while maintaining strict business discipline. Also here comes Shabda Nagari, a Hindi-language social networking portal that just secured $1.7 million in angel investments.

Round one is done, many stumbled and yet some took home a few coffins full of riches. But the second round is just around the corner and some steam is already on the horizon. Have a seat, ladies and gentlemen.