Every year around this time, the so-called Startup Media will start circulating the yearly losses that are reported by startups. It gets everyone talking about it, even though it makes no sense at all. I felt it was about time I explained this.
The idea of evaluating a startup by its P&L Statements for the year is a trading / Services industry mindset. And I'll explain why.
Think of a startup like raising a child. If you take even the smartest of children and look at the first 12 years of their education, it will look like they are net net only taking and not contributing back (If they do, it involves child labour).
Startups are the Process by which you create an asset.
Building assets are hard, but once built, they return money over and over and over and over - Just as a child’s education + 4 years of college, then pays for the rest of their life.
The valuation is usually based on the trajectory of where the investors believe the child will grow up to be. In this case, the startup.
Mature companies (like the ones in public markets) are like grown-up adults. And you can ask why they get harshly valued. If you are 30 and are still haven’t gotten a job, one might undervalue your future potential and current value.
Startups as an asset class are very early in the path to assess with yearly P&Ls.
It is also an asset class where there is a need for upfront investments to achieve scale, build capability and build brand.
There is a value to be created, value to be captured, processes to be experimented and ironed, people to be invested in, infrastructure to be built, brand to be nurtured, experience to be designed and delivered - all of which sinks money upfront, and amortizes later.
PS: It is also a fact that B2C is very hard in India (compared to B2B or B2B2C), especially with how low our Per Capita GDP is. So essentially most of the players are “investing” now, assuming that the 5trillion$ economy plan is real, in the near future, when it will pay rich dividends. Or they will use India to harden the stack and monetize it in other markets.
Great minds discuss Ideas. Average Minds discuss Events. Small minds discuss people [and poke their heads into other people's businesses].
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