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They were once India's most highly valued startups. Now the crushed valuations of fintech company Paytm and online educator Byju’s will weigh on the country's next wave of firms that will look to raise funds.
The pair were hard to fault in their early days. Paytm ushered in a digital payments revolution and became the poster child for India’s financial inclusion efforts. Byju’s offered standardised online education solutions to middle-class parents who spend small fortunes on hit-and-miss after-school private tuition. They both rose as Prime Minister Narendra Modi championed "Startup India" to nurture innovation, drive growth and boost employment opportunities.
Yet Paytm is now worth $3 billion, a shadow of its listing valuation of nearly $19 billion in 2021. Meanwhile Byju's, once-profitable and pegged at $22 billion in a 2022 fundraising, this week raised $200 million cutting its headline worth by 99 per cent. Founder Byju Raveendran described it in a letter to shareholders as "the only viable option".
The pain is self-inflicted. Paytm’s affiliate bank was effectively killed by the regulator after “persistent non-compliances”. Big backers including SoftBank have trimmed their shareholdings in the listed group. It won a minor reprieve last week by signing on Axis Bank to help it continue to make settlements for merchants. At Byju's, Raveendran expanded too fast through M&A. The company fought with creditors and its auditor Deloitte quit. Investors including the Chan Zuckerberg Initiative and Prosus exited the board and now want a change of leadership.
Oversight is hard to improve. Out of some 400 Indian founders surveyed by Inc42, 44 per cent said they faced increased scrutiny from financial backers in 2023, but more than half also rated investors' corporate governance measures as moderately or barely effective. The upshot? The next round of startups may be received cautiously. Food delivery firm Swiggy and scooter maker Ola Electric are among those working towards IPOs.
Ultimately, investors were too quick to back Indian companies they thought would replicate the runaway market success of China's Alibaba and Tencent. That duo has shed roughly $1 trillion of market value over the past three years on regulatory crackdowns. If Indian tech firms hoped to benefit from global investors' China aversion, they can think again. Many Indian startups are trading below their IPO prices despite benchmark indexes trading at a record high. The era of easy money for Indian startups is probably over.