A worker inspects smartphone components in the visual inspection area of the surface mount technology workshop at the Realme factory in Greater Noida, India: Anindito Mukerjee | Anindito Mukerjee | Bloomberg | Getty Images
Anindit Mukherjee | Bloomberg | Getty Images
India's fast-growing technology sector sees startups join forces with Byju's Paytm The company is in crisis amid scrutiny from regulatory authorities and allegations of mismanagement.
“There has been a bit of a reality check over the past few years on how to keep corporate governance practices at a sustainable and world-class level,” said Karan Mora, general partner at venture capital firm B. Ta. capital group.
Paytm, once the star of India's fintech world, has been mired in controversy since March 2022. After Reserve Bank of India It has ordered the fintech giant's banking division to immediately stop accepting new customers.
The central bank announced on January 31 that a subsequent audit „revealed continued non-compliance within the bank and continued significant supervisory concerns.“
Since March this year, Paytm has been unable to continue accepting new deposits on its accounts and digital wallets.
Although Paytm is not yet profitable. reportedly under investigation It was flagged by the Federal Anti-Fraud Office for possible violations of foreign exchange laws.
On February 26, Paytm's parent company One97 Communications said: exchange declaration Founder and CEO Vijay Shekhar Sharma has announced his resignation from the board of directors of Paytm Payments Bank.
During the pandemic, Paytm capitalizes on the digital payments boom In India, transaction value is reported to have increased 3.5 times. Investors like Softbank alibaba group and Ant Financial bet big on Paytm, but the stock has fallen more than 70% since its IPO in November 2021.
Softbank and Ant Group is reportedly currently According to local media, the company has reduced its stake in payment companies.
![Paytm has no clear path to profitability, which worries investors: Analyst](https://image.cnbcfm.com/api/v1/image/106977858-1637311236576-1637310049-19828563007-hd.jpg?v=1637310879&w=750&h=422&vtcrop=y)
![Paytm has no clear path to profitability, which worries investors: Analyst](https://image.cnbcfm.com/api/v1/image/106977858-1637311236576-1637310049-19828563007-hd.jpg?v=1637310879&w=750&h=422&vtcrop=y)
„Venture capital investors and founders have a huge responsibility to ensure that the governance of their companies is sound,“ said Ashish Wadhwani, co-founder and managing partner of IvyCap Ventures.
Byju's, once India's most valuable startup, is also struggling to survive. Valuation of Indian edtech startups plummets from $22 billion to $1 billion; and face a series of problems This includes allegations of accounting fraud and mismanagement.
The loss-making company, which offers services ranging from online tutorials to offline coaching, raised billions of dollars from investors when the pandemic shut down traditional classrooms.
The company is under intense scrutiny, with the Indian government reportedly ordering an inspection of Biju's financial and accounting practices. Bloomberg July 11th.
“I think the development with Byju’s is going to leave a permanent scar on this sector because people won’t see it as an isolated issue. They will see it as a viable part of the larger edtech They will see it as a gender issue,” said Babish Sood. He is a general partner at India-based venture capital firm Modulor Capital and former research director at consulting firm Gartner.
overrated
The COVID-19 pandemic has accelerated India's digital revolution.
From online education and food delivery to online shopping, technology companies have seen a surge in demand for their products and services.
The government recognized more than 14,000 new startups in 2021. In comparison, there were only 733 companies in 2016-17. Indian Economic Survey From 2021 to 2022.
As a result, India has become the third largest startup ecosystem in the world after the US and China, the study showed.
In 2021, a record 44 Indian startups achieved unicorn status, with a valuation of over $1 billion, taking the total number of Indian unicorn companies to 83.
The amount of venture funding for Indian startups reached a record high of $41.6 billion in 2021, the company announced. Data from global startup data platform Tracxn.
But then the tide turned.
Funding for Indian startups fell 83% in 2023 from a record high of $7 billion in 2021, as global venture capital dried up due to rising macroeconomic uncertainties such as rising interest rates.
Byju's valuation plummeted 95% as investors reduced their stakes in multiple rounds. It was most recently reduced to $1 billion after BlackRock reduced its stake in Biju last month, according to . media coverage.
![Venture capital model has broken down in the past two years, adviser says](https://image.cnbcfm.com/api/v1/image/107375465-17084282221708428220-33409072229-1080pnbcnews.jpg?v=1708428221&w=750&h=422&vtcrop=y)
![Venture capital model has broken down in the past two years, adviser says](https://image.cnbcfm.com/api/v1/image/107375465-17084282221708428220-33409072229-1080pnbcnews.jpg?v=1708428221&w=750&h=422&vtcrop=y)
The regulatory crackdown also hit Paytm hard, reducing its valuation to $3 billion as of March 7, according to LSEG data. This is a significant drop from the company's valuation of nearly $20 billion when it went public in November 2021.
„There's no question that valuations were very high in 2021 and early 2022,“ said Wadhwani of IvyCap Ventures. „Some companies IPOed at untenable valuations, which caused a lot of stress in the market.“
Byju's is facing financial difficulties and announced in January that: Raise $200 million in equity capital increase To settle „immediate debts“ and other operating costs. The company reportedly struggling to repay debts and pay staff salaries.
„Companies that don't have the money are being forced to do a down round,“ Wadhwani said, referring to funding rounds where companies raise capital at a lower valuation than the previous round.
„Companies that don't have a sustainable model are obviously going to go out of business because no one will fund them at exorbitant valuations,“ he added.
“But again, companies that operate on fundamentals will continue to attract funding.”