Newborn startups have an edge over later-stage ones. Here’s why

Everyone, including entrepreneurs and investors, are in a confused state right now. Valuations of firms are sky rocketing, still investors and startup founders think the numbers are justified. Even though a correction is due, investors are still pumping money like never before.
So what is really happening? Is the startup bubble going to burst soon?

Not very soon. Consumer internet firms that have high valuations are hitting roadblocks as venture capitalists have started asking the companies to fix the loose ends in their business models.

And investors are open to pump money in newborn startups, which provide on-demand delivery to cloud-based software product development.

So basically, newborn startups have abundant opportunities and later-stage tech companies, seeking Series-B and C or follow-on institutional rounds of funding, are likely to face a marked slowdown in growth.

"Even in the US, the best companies raise rounds which are one year apart where valuation jumps are really high. Entrepreneurs should instead of focusing on jumping rounds look to create genuine value," said Anand Lunia, founder of seed-stage VC firm India Quotient.

In the past 18 months, hedge funds invested millions of dollars into some of India's biggest consumer internet companies, including Snapdeal, Flipkart, Ola and Quikr, in the process driving up valuations.

"From 2006 to 2008, we saw prop books and hedge funds say that they will be in India for the long run, some even having teams on ground. But after 2008, we did not see most of them in the country," said Anand Prasanna, director of US-based investment firm Morgan Creek Capital.

"Investors are happy that there is some slowdown as they are now able to invest more rationally and not under pressure to pull the trigger," said an entrepreneur in talks to raise a $100-million funding round. "Those who have money in the bank will get more aggressive as they will be able to get better deals."

(Image: Thinkstock)