Indian startups should strive for building a sustainable business model

The Byju’s episode is dragging for too long. The latest development saw the Extraordinary General Meeting (EGM) of the edtech firm resulting in voting for the ouster of its founder-CEO Byju Raveendran. However, this resolution can’t be enforced as the Karnataka High Court had earlier restricted the implementation of the EGM outcome till it delivers its final verdict next month, which implies that Raveendran will continue as the firm’s CEO. “I am writing this letter to you as the CEO of our company. Contrary to what you may have read in the media, I continue to remain the CEO, the management remains unchanged and the board remains the same. It is business as usual at Byju’s,” Raveendran said in a note to the employees last Saturday. The Byju’s episode shows a deep divide between its shareholders, mostly institutional investors like PE & VC funds. Investors like MIH Edtech Investments B.V, Peak XV Partners Investments IV, Peak XV Partners Investments V, Sofina S.A. and General Atlantic Singapore TL Pte. Ltd are some of the big names opposing the continuance of the incumbent management. Though some big investors are also supporting the founder, such a rift doesn’t augur well for the future of the company. It’s a known fact that investors have lost a lot of money till now as company’s valuation plunged as shown in the recent rights issue.

Such investors are calling for more accountability, transparency and a new leadership for turning around the company’s fortunes. But then one wonders why these investors have not demanded such accountability in the company heyday. It was only the going got turbulent that the blame game began. One must remember that Byju’s may be the most discussed and debated case in the startup ecosystem where investors have lost money, but then it’s not an isolated case. There are thousands of startups wherein investors have lost their capital. Owing to funding winter, the scenario has turned for the worse. The pace of churning unicorns- startups with a valuation of $one billion or more- have come to a standstill in recent months. Definitely, this doesn’t put India at a good stead. When investors lose money, their confidence in the growth potential of that geography is shattered.

Limited Partners (LPs), who invest in the PE or VC fund, become cautious in putting their risk capital in startups belonging to that geography. In India’s case, several US and European investors have infused billions of dollars in startups in the last decade. Flow of such risk capital in the future will depend on the return potential of the Indian startup ecosystem. If investors feel India as a market is not able to provide good exits, their willingness to invest will come down considerably. At a time when India aspires to be the third largest economy in the world, it requires foreign capital to boost startups. Therefore, it is essential that founders of Indian startups show prudence in fund raising, provide sound exits and build a sustainable business model for the overall growth of the country’s startup ecosystem.