India’s Amazon.com equivalent four year old flipkart.com has apparently been valued at whopping USD 1 billion. One of India’s fastest growing couponing Snapdeal.com has snapped up USD 40 million the largest single round investment among the Indian internet companies.

Report suggests that private equity players have pumped in almost to 230 million dollars into the Indian internet space till March 2011. So, on this episode of Young Turks, we discuss if Indian internet companies really come off age. Are these valuations for real and what has changed for India’s internet economy since the last bubble?

Joining Shereen Bhan to discuss all of this and more is Hitesh Oberoi, MD and CEO, Info Edge, Alok Mittal, MD, Canaan Partners, Rajesh Magow, Co-founder and CEO, Makemytrip.com, Kunal Bahl, Co-founder & CEO of Snapdeal.com and Vani Kola, MD, IndoUS Ventures and Mukesh Bansal Co-founder and CEO of Myntra.com.

Below is an edited transcript of the interview.

Q: Given the kind of valuations that we are currently seeing, given the kind of money that people like Snapdeal and flipkart are raising, do you feel you were born a couple of years too early?

Oberoi: Valuations have suddenly risen in the last one-two years, but I think it’s all very good for the internet space because internet in India has an opportunity which is waiting to happen. We have already seen what has happened in China, we have seen what has happened in the US. The fact of the matter that India just has 80 million users and this number is going to go to 300-500 million.

Q: The fact of the matter is that currently we have only 80 million users. How much of the kind of craziness that we are seeing with valuations is driven by the kind of frenzy that we are seeing in markets like US and China which are very different markets from India?

Oberoi: Valuations in India are still low compared to what you get to see in US and China. Amazon.com is valued over a USD 100 billion. The number one travel site in China is valued at USD 6 billion.

Q: But it’s taken them over a decade to get there?

Oberoi: Yes, but what people are saying is that India will get there in the next five years. Of course there is lot of belief and lot of hope, but that is what investors are thinking.

Q: What do you think has fundamentally changed in the Indian internet economy to demand this kind of valuation?

Mittal: I think the hidden actor behind all this is the Indian consumer. Over the last three years, the Indian consumer has changed, has started transacting online. Many of these businesses are now transacting more than USD 5 million dollars a month from zero two years back. That is the kind of growth we are seeing and I think the Indian consumer is the real beneficiary of these valuations. All the hundreds of millions that is getting out there will be spent on educating the Indian consumer, offering high quality services and discounting. So that is kind of hidden actor behind all this.

Q: So you believe that the valuations are for real and you don’t believe this is a another bubble in the making?

Mittal: There might be a valuation bubble, but there are fundamentals behind it which are supporting the excitement and the belief that in five years time some of these companies will be big companies. Some of these companies will fail, that is the nature of venture business, but I think the investors will protect themselves. The question mark for entrepreneurs will be can they steer the course and build businesses the right way and build value for themselves because they are first ones who get crushed by these valuations if they don’t deliver.

Q: How much of this do you believe is real?

Magow: In early 2000, it was only potential which was being looked at; internet penetration, the payment and ecommerce infrastructure was very poor. It has evolved a great deal now which has increased consumers’ confidence to transact on the internet. Even internet penetration has expanded because of broad band and 3G rollout.

Q: Coming to the entrepreneur, you have just managed to raise USD 40 million, which is a big achievement. Are you feeling the pressure of performance now?

Bahl: Not yet, but I am sure the pressure will come eventually. There is a lot of talk about high valuations but the valuations are actually because the companies are demonstrating clear metrics; the valuations are forward looking. Any entrepreneur who says that the valuations today are not forward looking is lying. However they are not five year forward looking because people are growing into their valuations in 6-12 months now.

Q: Give me an instance for Snapdeal. What is the kind of numbers that you have shown and what is the kind of projection that you are making over the next 12 months?

Bahl: Within this year, we will probably cross Rs 150 crore in revenue. We just started 17 months ago and that kind of growth was never seen in India before in any sector of the industry. Also one fundamental thing that ecommerce is doing for consumers in India is providing them access to aspiration. So Indian consumers have lot of aspiration across the country, but Brick and Motar retail has not scaled as fast as everyone wanted and so ecommerce is providing that access to them.

Q: You are investing in Indian Internet companies, the kind of money that we are seeing going towards these Indian internet companies is on account of the fact that we don’t really have that many good scaleable operations currently in India so is this also a question of scarcity of good Indian Internet companies and the kind of valuations we are seeing as a result of that?

Kola: The 2000 bubble in US, still had Amazon and Google and other great companies come out and probably many companies that went on the wayside. The companies that you are seeing here today, these are the good companies that are getting funded and there will be companies that probably won’t make it. So by that measure some companies will be over funded and hence the bubble as you say will be a factor.

But the reason for the core of this funding is because today in India there is only 8%-10% penetration of the Indian market. If you look at the developed world say UK there is only 51 million internet users and that is a very high saturated country already and they have over USD 100 billion in online ecommerce. So you can extrapolate and say what is the opportunity in India, it is huge.

The value proposition of convenience cost and discovery will make Indian consumers come online. So the question of what is the right inflection point and who are the right companies? - And that is the Holy Grail and if you are in one of those then the returns and payout can be huge and that is the core value proposition of a venture capitalist, to find those companies that will emerge and become the biggest winners.

Q: I want to talk to you about the balance between the entrepreneurial idea and the vision and the vision of the venture capitalist who is investing in your particular venture or company. How do you strike that balance?

Bansal: A lot of our journey is driven by the consumers. What we realized over three years is that we did very well in personalization, but we also realized it is a very niche category. We also saw that the lifestyle segment was growing at 15-16% CAGR, so it will be USD 100 billion category. So a lot of it is recognition by the team on the ground that there is a bigger opportunity we can go after.