Only 1 in 5 start-ups gives good return: Experts

The excitement around e-commerce is real but the valuations may be a bubble

India has witnessed a boom in the e-commerce/start-up sector in last five years but only one out of five start-ups gives good returns, while three do not give any return or simply fold up, say experts.

Moreover, as the focus has now shifted to developing and encouraging more start-ups, there is a definite chance that many start-ups and .Coms would find it difficult to flourish amid tough competition from already established ones.

"The excitement around e-commerce is real but the valuations may be a bubble," The Chennai Angels member Kayar Raghavan said, adding that, "one out of five startups gives good returns while three do not give any return or simply fold up."

Experts believe, with all these major players who are already operational and making profits smaller set ups find it tough to gain second round of funding

or hard to continue further after the funding. Between 2012-2014 alone there have been many start-ups shutting shop.

"Exits" for initial investors are difficult to come by not just in India, but across the world.

Sometimes, earlier investors get to exit partially or fully at subsequent fund raising rounds. Another form of exit happens through consolidation/M&A. IPO is the other preferred route.

Raghavan noted that investors to the startups get few exits but when one does indeed get an exit through whatever means (secondary or M&A), that is highly likely to be only profitable.

"Redbus, Snapdeal, Myntra, Flipkart, Mu Sigma, JustDial, LetsBuy, makeMyTrip, Chakpak, Rediff, etc, are examples although a couple of these may have made money for only early investors," he added.

Another member of The Chennai Angels Mithun Sacheti said "exits are not always profitable. Exit in itself means a return on capital, which would be positive or negative. But it is better than having no option to exit and being a part of a living dead company."