Thinkpad: Meet The Crazies

Happy Sunday.

Last year, we were all getting hot-under-the-collar debating the disconnect between the real economy and the equity markets.

Somewhere someone in the startup universe said—you think that disconnect is crazy? Hold my drink. So here we are now. Startup funding is flowing like champagne. Valuations are bubbling over. Revenue? Profit? What do we need that for?

This week was particularly hectic in unicorn land.

  • Groww, which pitches itself as a millennial focused investment platform, hit the $1 billion mark—a fourfold increase in valuations in seven months.
  • CRED, which offers credit card reward points and has kept everyone guessing on how they will make money, went from an $800 million valuation in January 2020 to $2.2 billion now.
  • Meesho, which appears to be a Tupperware-inspired business model, is valued at $2.1 billion.
  • Sharechat, a content sharing platform which is betting on the success of its short video services, took home a valuation of $2.1 billion.
  • API Holdings, a digital pharmacy, was valued at $1.5 billion.

That’s not to say that all that is going on in the start-up universe is crazy. If you haven’t already caught it, Credit Suisse in its now widely cited report, had found that India may have somewhere close to a 100 unicorns with a market capitalisation of $240 billion. Credit Suisse called this an “extraordinary episode” of new company formation. So what we are seeing now, perhaps, is an expansion of that club. Beware of the fakes though.

It would be unfair to suggest that only the startup universe is afflicted with the crazies. Nope. They have crept into every market.

Take junk bonds for instance. The January-March quarter was the busiest ever in the U.S., with $140 billion in junk bonds being sold. In 2020, $432 billion in such bonds were sold.

In a rare example of startup-madness meets junk-bond-madness, Oyo Rooms was apparently toying with the idea of raising dollar bonds. It told BloombergQuint it’s constantly engaged with capital providers, which is corporate communication speak for “neither confirm, nor deny”. Of course, an Oyo subsidiary now finds itself faced with a bankruptcy suit filed by an operational creditor so we’ll see how far that plan goes. That, by the way, is quite the story in itself and you can read here to catch up.

So are the equity markets suddenly looking sane compared to what’s happening in other corners? No way, jose. This statistic from Bank of America proves the point — investors have put more money into stocks in the last five months than they have in twelve years combined.

And then there is Bitcoin—everybody’s old favorite in the world of crazies.

Chris Wood’s GREED & Fear, this week, quoted the late Barton Biggs to say they’re “maximum bullish” on Bitcoin. This is partly because of monetary and fiscal policies across G-7 countries but also demand-supply dynamics, Wood wrote. Apparently, the culture in the crypto world of “hodling” where people hoard Bitcoin is leading to tighter supply just as demand is rising.

Taking the Bitcoin-is-the-new-gold theory to another level, Woods draws a comparison between Bitcoin of 2020s and gold of 1930s. We’ll give you that view unadulterated:

“…The risk in all of the above is that the interventionists now running Washington try to ban ownership of Bitcoin just as the interventionist administration of Franklin D. Roosevelt banned ownership of gold in America in 1933 in a then attack on so-called “hoarders”. In GREED & fear’s view such a risk, if it exists, comes much later. Such a ban will also be extremely hard to implement in the decentralized world which is the essence of blockchain technology. GREED & fear continues to believe that the blockchain, and the related world of crypto currencies and so-called ‘De-Fi’, represent an existential risk to the financial services industry on a ten-year view as activity moves elsewhere.”

Much to think through there even if you disagree.

We’ll close this week’s Thinkpad on a sombre note. The second Covid-19 wave of infections is soaring. These numbers tell their own story.

Stay in. Stay safe.