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India’s startup ecosystem has been singed by Paytm and Byju’s controversies. Dominant founders and weak boards are a problem. But don’t discount quiet successes.

This past week the Indian startup world has been whiplashed like never before. Two of its biggest names, Paytm’s Vijay Shekhar Sharma and Byju’s founder Byju Raveendran, face what’s arguably an existential challenge to the businesses they have built.

Did it come as a shock to the people closely tied to the ecosystem? Not really. For the wider population, however, these developments tarnish the image of the new-age economy and its entrepreneurs who have been lionised.

L-R: Paytm’s Vijay Shekhar Sharma and Byju’s founder Byju Raveendran

Rock star founders | Having had a ringside view, it’s fair to say that Sharma and Raveendran epitomise the solo, alpha, go-for-broke founder the technology world prizes immensely. They are also in some ways bigger than the companies they have built. While one cannot write them off (think Adam Neumann who came back to raise tons of venture capital after the WeWork debacle) there are many lessons for the wider technology world especially in a market like India.

Boom-bust cycle | Every technology boom cycle, like the recent 2021 hyper funding period, creates a series of messy events which unfold subsequently. Carcasses emerge once the dust settles. That’s what we are seeing. The excesses of easy money (read a zero interest rate regime in US) ended in severe blows being dealt to these companies recently. While the reset in technology industry is underway and the funding squeeze continues, the near-collapse of Paytm Payments Bank and Byju’s is reflective of how lack of governance, compliance and transparency and a culture which side-steps these critical issues can run you down.Image is not everything | Another big problem is the way founders in these companies became larger-than-life characters before their startups really achieved profitability or a steady state of being.

Paytm’s slow descent | Sharma’s online payments company One 97 Communications, which operates the popular brand Paytm, went public in 2021 amidst the most boosterish period for global tech. While Paytm’s parent One 97 Communications’ listing bombed, it has successfully created a significant business around offline merchants, Unified Payments Interface (UPI), FASTag, mobile wallets, bill payments. Due credit to Sharma and the company for building a large fintech play in a highly competitive space dominated by traditional banks. But the scale did not translate into better control and compliance.

An industry veteran told me at Paytm, given the goal of growing the business at high speed, governance was not a priority even after its IPO. Reserve Bank of India’s action against Paytm Bank’s operations on January 31 came after it raised several red flags pointing to gaping holes in the fintech’s internal systems.

Edtech cowboy | A similar cowboy-like way of running a company was the story at edtech startup Byju’s. Once valued at $22 billion, it’s now worth virtually nothing. After almost a year of widening chasm between the company’s investors and Raveendran, now these shareholders want to oust the founder and his family so that they won’t control operations.

Birthing alphas | A lot of what we see today is because risk investors in privately held startups have not been able to rein in entrepreneurs claiming they are founder friendly. Very little scrutiny, along with easy availability of capital and an overall environment favouring entrepreneurs has birthed and nurtured these alpha founders.

Don’t forget the successes | Paytm and Byju’s are not the only two companies that define the past 15 years of Indian tech and startup industry. There are founders who have built quietly, away from the grandstanding and storytelling. Just as these two companies face tough situations, others like publicly listed firms, including food-delivery brand Zomato, insurance marketplace Policybazaar and new-age logistics player Delhivery have turned profitable.

Basics matter | If entrepreneurs and startups focus on compliance, control and governance from the beginning, and are given the time to grow in a manner feasible for India, there is a lot that can be built meaningfully. While hyperscaling and blitzscaling Silicon Valley style may work to attract billions of dollars at high valuations, these businesses can flameout if fundamentals aren’t strong.

Let go, boss | If Paytm and Byju’s bite the dust, it’s also because founders didn’t step aside and give way to a professional CEO at the right time. Both Sharma and Raveendran have run their companies with total control despite a multitude of issues and controversies surrounding them. Even their board members and shareholders didn’t pull them back seeing their valuations spike, only to find themselves with no control now. Maybe a change in guard would have helped mend the situation, change the culture and helped the company grow up.

Build to last | The real challenge from here on for the new-age economy is to show they are here to stay with companies that will outlive their founders. Identifying the right set of entrepreneurs as role models will be the key to this ecosystem achieving its potential.

Samidha Sharma is Editor – ETtech. She’s been covering the tech and new-age digital economy for over a decade, and has had a ringside view of the industry and its people.

This column first appeared in The Times of India

  • Published On Feb 5, 2024 at 03:40 PM IST

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