This year, the burgeoning Indian tech industry has been dealt a serious blow when startup darlings Byju's and a former Paytm affiliate went bankrupt under regulatory investigation.
“There’s been a bit of a reality check for the last couple of years in terms of how to keep corporate governance practices up at a level which is sustainable and at a world class level,” said Karan Mohla, general partner at venture capital firm B Capital Group.
After receiving an order from the Reserve Bank of India to cease accepting new clients immediately, Paytm Payments Bank found itself embroiled in controversy. To resolve the compliance issues, the bigger fintech company Paytm severed some of its ties to the struggling banking division on Friday. Although not under Paytm's authority, the banking division has been handling the majority of its payments.
The central bank announced on January 31 that a follow-up audit of Paytm Payments Bank "revealed persistent non-compliances and continued material supervisory concerns in the bank."
The banking unit was prohibited from taking new deposits into its accounts or digital wallet as of March of this year.
Not only is the unit not yet profitable, but the federal anti-fraud agency is reportedly looking into potential violations of foreign currency laws.
Vijay Shekhar Sharma, the founder and CEO of Paytm, announced his resignation from the board of Paytm Payments Bank in an exchange filing on February 26, according to One97 Communications, the business that owns Paytm.
“Venture capital investors and founders have a greater responsibility to make sure that governance in the company is sound,” said Ashish Wadhwani, co-founder and managing partner of IvyCap Ventures.
The once-most valuable company in India, Byju's, is currently having difficulties. The Indian edtech business is facing a number of issues, such as suspected accounting irregularities and accused mismanagement, and has seen a decline in valuation from $22 billion to $1 billion.
During the epidemic, when regular schools were closed, investors spent billions of dollars in this unproductive corporation that provides everything from analogue coaching to online lectures.
According to Bloomberg on July 11, the Indian government reportedly authorised an investigation into Byju's finances and accounting procedures, putting the company under investigation.
“I think that the sector is going to be permanently scarred because of the development with Byju’s, because people are not going to look at that as an isolated problem. They will look at it as a larger edtech viability problem,” said Bhavish Sood, general partner at India-based venture capital firm Modulor Capital and former research director with consulting firm Gartner.
Overvalued Assessments
The Covid-19 pandemic hastened India's digital transformation.
Tech companies reported a spike in demand for their goods and services, from online shopping to online meal delivery and education.
According to India's Economic Survey for 2021–2022, the government recognised more than 14,000 new businesses in 2021, up from just 733 between 2016 and 2017.
As a result, according to the report, India has grown to become the third-largest startup environment globally, behind the United States and China.
The number of unicorns in India increased to 83 in 2021 when a record 44 Indian firms were valued at $1 billion or more.
tracking from the international startup tracking platform Tracxn shows that venture funding into Indian businesses reached a record $41.6 billion in 2021.
However, things have since changed.
After reaching a record high of $7 billion in 2021, financing for Indian startups fell by 83% in 2023 as a result of a decline in global venture capital due to growing macroeconomic uncertainty, including higher interest rates.
After investors pulled out of Byju in many rounds, the company's worth fell by 95%. The most recent reduction was to $1 billion following BlackRock's reduction of its Byju's shares last month, as per media sources.
Early in February, Paytm's market value had dropped by $2.5 billion due to the regulatory crackdown on Paytm Payments Bank. Compared to its almost $20 billion valuation upon listing in November 2021, that is a significant drop.
“There is no doubt that valuations were very stretched in 2021, early 2022,” said Wadhwani from IvyCap Ventures. “Some companies have done IPOs at valuations which were just not tenable and that caused a lot of stress in the market.”
Due to financial difficulties, Byju's announced in January that it will be raising $200 million through a rights issue of shares to pay off "immediate liabilities" and other running expenses. It is said that the company is having trouble making personnel salary payments and repaying debt.
“Companies which don’t have cash are being forced to do down rounds,” said Wadhwani, referring to funding rounds in which firms raise capital at a lower valuation than a previous round.
“Companies which don’t have a sustainable model are obviously going to go out of business because no one is going to fund them at crazy valuations,” he added.
“But also again, businesses which are run on fundamentals will continue to get funding.”
(Source:www.cnbc.com)
“There’s been a bit of a reality check for the last couple of years in terms of how to keep corporate governance practices up at a level which is sustainable and at a world class level,” said Karan Mohla, general partner at venture capital firm B Capital Group.
After receiving an order from the Reserve Bank of India to cease accepting new clients immediately, Paytm Payments Bank found itself embroiled in controversy. To resolve the compliance issues, the bigger fintech company Paytm severed some of its ties to the struggling banking division on Friday. Although not under Paytm's authority, the banking division has been handling the majority of its payments.
The central bank announced on January 31 that a follow-up audit of Paytm Payments Bank "revealed persistent non-compliances and continued material supervisory concerns in the bank."
The banking unit was prohibited from taking new deposits into its accounts or digital wallet as of March of this year.
Not only is the unit not yet profitable, but the federal anti-fraud agency is reportedly looking into potential violations of foreign currency laws.
Vijay Shekhar Sharma, the founder and CEO of Paytm, announced his resignation from the board of Paytm Payments Bank in an exchange filing on February 26, according to One97 Communications, the business that owns Paytm.
“Venture capital investors and founders have a greater responsibility to make sure that governance in the company is sound,” said Ashish Wadhwani, co-founder and managing partner of IvyCap Ventures.
The once-most valuable company in India, Byju's, is currently having difficulties. The Indian edtech business is facing a number of issues, such as suspected accounting irregularities and accused mismanagement, and has seen a decline in valuation from $22 billion to $1 billion.
During the epidemic, when regular schools were closed, investors spent billions of dollars in this unproductive corporation that provides everything from analogue coaching to online lectures.
According to Bloomberg on July 11, the Indian government reportedly authorised an investigation into Byju's finances and accounting procedures, putting the company under investigation.
“I think that the sector is going to be permanently scarred because of the development with Byju’s, because people are not going to look at that as an isolated problem. They will look at it as a larger edtech viability problem,” said Bhavish Sood, general partner at India-based venture capital firm Modulor Capital and former research director with consulting firm Gartner.
Overvalued Assessments
The Covid-19 pandemic hastened India's digital transformation.
Tech companies reported a spike in demand for their goods and services, from online shopping to online meal delivery and education.
According to India's Economic Survey for 2021–2022, the government recognised more than 14,000 new businesses in 2021, up from just 733 between 2016 and 2017.
As a result, according to the report, India has grown to become the third-largest startup environment globally, behind the United States and China.
The number of unicorns in India increased to 83 in 2021 when a record 44 Indian firms were valued at $1 billion or more.
tracking from the international startup tracking platform Tracxn shows that venture funding into Indian businesses reached a record $41.6 billion in 2021.
However, things have since changed.
After reaching a record high of $7 billion in 2021, financing for Indian startups fell by 83% in 2023 as a result of a decline in global venture capital due to growing macroeconomic uncertainty, including higher interest rates.
After investors pulled out of Byju in many rounds, the company's worth fell by 95%. The most recent reduction was to $1 billion following BlackRock's reduction of its Byju's shares last month, as per media sources.
Early in February, Paytm's market value had dropped by $2.5 billion due to the regulatory crackdown on Paytm Payments Bank. Compared to its almost $20 billion valuation upon listing in November 2021, that is a significant drop.
“There is no doubt that valuations were very stretched in 2021, early 2022,” said Wadhwani from IvyCap Ventures. “Some companies have done IPOs at valuations which were just not tenable and that caused a lot of stress in the market.”
Due to financial difficulties, Byju's announced in January that it will be raising $200 million through a rights issue of shares to pay off "immediate liabilities" and other running expenses. It is said that the company is having trouble making personnel salary payments and repaying debt.
“Companies which don’t have cash are being forced to do down rounds,” said Wadhwani, referring to funding rounds in which firms raise capital at a lower valuation than a previous round.
“Companies which don’t have a sustainable model are obviously going to go out of business because no one is going to fund them at crazy valuations,” he added.
“But also again, businesses which are run on fundamentals will continue to get funding.”
(Source:www.cnbc.com)
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