Two of the most prominent names in the Indian startup ecosystem – Paytm and Byju’s – are fighting their biggest battles for survival. While the former has faced regulatory crackdown from the Reserve Bank of India (RBI) for “persistent non-compliances,” the latter has witnessed erosion in investor confidence with a majority of its shareholders, in an Extraordinary General Body Meeting (EGM), seeking to oust its CEO and his family from management responsibilities. During their heydays, the two firms deeply penetrated the Indian market and attracted big money from local and foreign investors. With time, their valuations too soared to record highs and everything seemed rosy. What went wrong with the poster-boys of the Indian startup world? Perhaps they couldn’t see the writing on the wall. Also, it may be noted that almost all known Indian startups are clones or copies of similar ventures that have succeeded in the West or China and Japan.
Paytm, the company credited with revolutionising digital payments in India and which carried full front page advertisements in national dailies immediately after the November 2016 Demonetization declaration, has benefited the most from the present government’s push for doing away with cash transactions. The Centre’s decision to demonetize Rs 500 and Rs 1,000 denomination currency notes came as godsend for the company. It soon became a payments giant with the backing from international investors like Japan’s Softbank. In 2021, when Paytm got listed in the stock market its value was nearly $19 billion. However, today it is worth just $3 billion. The RBI delivered a significant setback to the fintech behemoth 31 January prohibiting Paytm Payments Bank from accepting customer deposits, credit transactions, and top-ups citing “persistent non-compliance, and continued material supervisory concerns.” This came almost two years after the entity was barred from onboarding new customers. Undoubtedly, the company had been slipping for a long time and the RBI had been trying to cover up the misdeeds. But, this time the regulator’s unprecedented action came only when it failed to cover up any further wrongdoings and was forced to order the company to effectively shut down its banking operations. The central bank stated that it had given the company ample time for course correction. However, according to RBI, prompt action from the company’s board of directors was clearly lacking. The biggest concern for the regulator was the massive lapses in the company’s Know Your Customer (KYC) compliance.
A similar story has unfolded in Byju’s. Less than two years ago, the edtech giant held a valuation of $22 billion. It became a household name during the COVID-19 pandemic when a countrywide lockdown confined a billion plus Indians to their homes. However, the company’s worth plummeted to less than $1 billion recently. Following years of purported irregularities, shareholders who hold about 30 per cent stake in the cash-strapped startup have voted in an EGM to remove Byju Raveendran, the founder and CEO, along with his family members from the board. The firm however termed the decisions taken at the EGM as invalid as they did not comply with the company’s internal laws. Ravindran expanded ultra-fast through mergers and acquisitions. As a result, the company had issues with creditors and its auditor, Deloitte, had to quit. Besides, investors like Chan Zuckerberg Initiative and Prosus left the company and now want a leadership change. Shoddy internal governance, flagrant disregard for norms and greed are some of the vices that have always ailed the Indian corporate world in general and the startups in particular. It appears, investors were too quick to back Indian startups as they expected a repeat of the runaway market success of China’s Alibaba and Tencent. Yet, today many Indian startups are trading below their listing prices even though the benchmark indices – the Sensex and Nifty — are trading at record highs. With big names like Paytm and Byju’s cutting a sorry figure, easy money may get difficult to come for Indian startups.