Vinod Khosla
Vinod Khosla, founder of Khosla Ventures.Reuters

Vinod Khosla, one of the co-founders of Sun Microsystems and a prominent investor, said on Thursday that 85% of Indian online retailers, including Flipkart and Snapdeal are 'overvalued'.

"If you ask me Flipkart, Snapdeal and other e-commerce start-ups are overvalued," Khosla told Business Standard.

Khosla, who owns a venture capital firm, Khosla Ventures, also said that Indian start-ups should not become 'overconfident' as they see massive investments flowing into them.

"Take the money that comes in your way, but do not get overconfident with the money. Examine the company, look for flaws as much as you look for trends," Khosla said.

"Sometimes, when venture funding becomes easy, people forget that in the end business has to work. Especially when so much money is flowing, you have to be careful not to waste money and talent around something that has flaws," he added.

Indian e-commerce firms have come under severe criticism from various quarters for their unrealistic valuations.

Domestic Internet start-ups have been using unconventional terms to show higher growth numbers in a bid to attract more investments, but many warn such a practice is leading to a bubble situation that would burst soon. 

The country's largest e-tailer Flipkart is currently valued at $15.5 billion, while Snapdeal's valuation stands at about $5 billion. Investors like Japan's Softbank and Tiger Global are pouring in huge money in these firms, as they see many Indian customers switching to online shopping.

The firms are burning crores of rupees as they offer incentives and discounts to attract customers to online purchases. However, since their launch a few years ago, Flipkart, Snapdeal and other such firms have never posted profit.

During the March to June period this year, investors have pumped in $2.33 billion in Indian start-ups, as against $844 million during the same period last year, a data from CB Insights showed.

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