The week that was: Hope and despair on Startup St

Hi, this is Pratik Bhakta in Bengaluru. What a week it has been for the startup world! While at one end Paytm, the poster child of the fintech sector, struggled to save its business, on the other, listed startups like Policybazaar were talking about dividends and share buybacks.

And to top it all, the buzz around the troubles at Byju’s just wouldn’t die.

But if there’s one thing that has come to the fore this week, it’s compliance and governance issues at startups. When companies are in the nascent stage they can get lax on setting up internal controls, but once you scale it becomes a different proposition altogether.

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Take the case of Paytm. Multiple times in the short duration since it got the coveted banking licence, the company has been in the cross-hairs of the regulator. Until finally the central bank put a stop to its banking operations altogether.

“The attitude of founders that it is my way or the highway, or that I can break through boundaries will not do. Maybe the RBI is saying that you cannot handle public money with that attitude,” said a senior banker who works very closely with startups referring to the latest diktat on Paytm Payments Bank.

Senior lawyers who have been advising startups also told ETtech that in many cases founders felt that a licence is a protective ring. “But a licence is just a starting point and the quantum of compliance just goes up after that,” the banker said.

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And this is not restricted to the fintech space alone. Beleaguered edtech Byju’s is going through challenging times too. On Thursday, a bunch of its shareholders sought an extraordinary general meeting (EGM) to remove the management and the board of the company. Byju’s has, however, disputed the shareholders’ rights to change its CEO.

“These are wrong signals which are going out to the larger investor community, at a time when the government is betting on startups to generate jobs for the future. This is not good optics,” said a senior executive at a venture investments firm.

But in the midst of all this, there was a silver lining as well. Insurance marketplace PB Fintech, the parent of Policybazaar, reported its first profitable quarter with a net profit of Rs 37.2 crore.

Yashish Dahiya, cofounder of the now-listed company, told us that he could explore returning part of the shareholder money. Temasek exited the company fully on Thursday, clocking an 18-times return on an investment of Rs 134 crore that it made in 2015.

On Friday, logistics firm Delhivery reported profits too, becoming the third loss-making, new-age public company to book a quarterly profit this fiscal after Zomato and PB Fintech.

There was movement on the policy front as well. During the presentation of the interim budget for FY25, the finance minister spoke about setting up a Rs 1 lakh crore fund to support research and development in sunrise sectors.

Industry insiders say that there is no denying the potential of Indian startups. But while racing ahead to innovate and build, perhaps founders need to take a minute or two to check the traffic lights and slow down once in a while.

Paytm: Server Down

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Byju’s Crisis

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After a group of key shareholders at Byju’s issued a notice for an EGM to address ‘persistent issues’ including a change of management, the edtech firm defended its current management structure in a communication to employees.

The management also acknowledged a delay in January salaries, attributing it to an “artificially induced crisis” by certain investors. “Unfortunately, the company and our employees are paying the price for a stand-off triggered by some investors,” the media statement said.

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Earlier this week, the edtech firm kickstarted a rights issue to raise up to $200 million, ascribing it a valuation of around $20-25 million. Post a successful rights issue, it will be valued at around $225 million — a 99% cut from its peak of $22 billion.

In addition, Raveendran may increase his stake in the company if he manages to arrange capital for rights issue, but that depends on the final set of investors subscribing to it.

Byju maths the rise and fall in valuation_Jan 2024_Graphic_ETTECH (1)

Also read | Ranjan Pai may put $50-60 million more to grow Byju’s Aakash

Key Reads From the Week

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Ram Iyer, founder, Vayana (left) and Sundeep Mohindru, chief executive officer, M1xchange

RBI-backed TReDS logs quick growth after slow takeoff: RBI’s invoice discounting platform (TReDS), meant for easy access to credit for small businesses, has seen increased usage in the past year after a slow start. The platform crossed financing of Rs 1.16 lakh crore in 2023, according to data from the RBI.

TReDS updated

Startups talk up funding winter, but loosen their purse strings: Several of the country’s top internet firms stepped up their spending during fiscal 2023 despite all the talk about controlling expenses given the onset of a ‘funding winter’. An ETtech analysis showed that while some of them managed to trim costs, most others stepped up on spending, either to gain a competitive advantage or boost growth numbers.

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Semiconductor Laboratory revamp: Tata, Texas, Tower among nine bidders | The government has received nine bids from companies such as the Tata group, Israel’s Tower Semiconductor, and Texas Instruments for the overhaul of its Semiconductor Lab (SCL) in Mohali, sources told ET. About $1 billion has been earmarked for the modernisation of the 48-year-old facility.

Meesho joins carts queued up at credit, grocery counters: In a bid to diversify revenue lines and move towards profitability, ecommerce firm Meesho is building out its own financial services team and expanding its grocery offering — once again.

Tech Hiring & Layoffs

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IT campus hiring tumbles to two-decade low: Even as some green shoots emerge in the hiring trends of India’s $245-billion IT sector, this year might prove to be a difficult year for fresh engineers. Hiring firms estimate that less than a tenth of the 15 lakh engineers expected to graduate this summer will find a job placement.

Layoffs at big internet firms keep staffers at startups on the edge:
Following a string of layoffs at some of the country’s prominent internet firms, employees and human resources (HR) professionals in the startup ecosystem are having to realign expectations after the aggressive hiring done by startups in 2021.

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Wipro to lay off hundreds of mid-level employees to improve margins | In a bid to boost its lagging profit margins, IT services major Wipro is trimming “hundreds” of mid-level onsite roles. This move is a significant one for Wipro as it struggles to improve its financial performance.

Budget 2024

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Tax holiday for startups, sovereign funds extended by one year: The budget proposed to extend the tax incentive for startups and investments made by sovereign wealth or pension funds for one more year till March 2025. The tax holiday scheme for startups offers a 100% tax rebate to eligible startups on profits made for three years in a total time frame of 10 years of operations.

By Invite: Foundation for ‘Viksit Bharat’ | Kalyan Krishnamurthy, CEO, Flipkart group, said the interim budget holds the promise of propelling the nation towards its vision of ‘Viksit Bharat’ by 2047 — a developed India by the centenary of its independence.

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