Stakeholder discord and falling valuations in Indian startups prompt questions about the trajectory of the country’s startup story

Earlier last month, the Extraordinary General Meeting (EGM) convened by Byju’s was marked by notable discord and stakeholder boycotts, culminating in a decision to oust the company’s founder, Byju Raveendran, from the role of chief executive officer. Spearheaded by influential shareholders such as Prosus NV and Peak XV Partners, this move signifies an intensification of the ongoing disagreement regarding the future direction of the erstwhile leading online tutoring platform.

Once the poster child of India’s booming start-up ecosystem, the turn of events at Byju’s has opened the floodgates for scrutiny of governance of startups in the country. The issues faced by Byju’s are self-inflicted, but the damage caused has hurt the larger startup and edtech ecosystem in the country. These thoughts were echoed by Mr. Ronnie Screwala a little while back, who stated that one rotten apple should not affect the larger ecosystem. This is why only recently we are witness to how success for any startup in India is no longer measured simply by how much funds they have raised, but by how they are utilising the money.

The humour in the Byju’s story is not lacking. Byju’s heralded as an edtech success story, apparently generates the major portion of its revenues from the sale of tablets, SD cards and other tech products. The revenue earned from its course fees is a minor portion of its revenue and that’s where the problems begin for Byju’s. By gradually shifting from a core education company to a hardware sales company, the core value of Byju’s products were lost. The wilful transition from a value generating edtech company, to a rabid sales focused company is perhaps one of the reasons for the notoriety Byju’s is experiencing today.

India, which has proudly counted five decacorns among its ranks, a distinguished category comprising only 47 startups globally valued at over US$10 billion. Among these, Byju’s stood out as the most esteemed Indian decacorn. This is no longer the case now with Byju’s valuations plummeting from $22 billion in 2022, to estimates that suggest a fraction of the value at below $1 billion—a 95 percent drop.

Corporate governance issues are at the heart of this drop - of high losses, ambitious marketing spends and delayed submission of audited accounts. The decision at the EGM to reconstitute the board and removal of the founder marks a significant step toward reinstating investor trust, fostering accountability and guiding the company toward a more sustainable and transparent operational framework. Investors have made it clear that they will not tolerate misdemeanours any longer. 

Albeit the decisions of the EGM have been dismissed by Byju’s and an interim stay order has been passed by the Karnataka High Court to this regard, the issues plaguing Byju’s are bound to have rippling effects on investor-startup relations in the years to come. One way forward for Byju’s to salvage its position is by actually letting their investors take control of the company. After all, these investors have significant skin in the game and have already been part of the tumultuous rise of Byju’s for many years. 

Also, going by past records, investors stepped into Bharatpe, another glorious startup which was impacted by governance issues and turned it into a profitable venture within a year.

It is a precedence that underlines the structural benefits of letting investors take a larger role in turning around a company into which they have pumped in billions.

Whatever the outcome may be from the ongoing proceedings at the Karnataka High Court, or the NCLT judgement on interim orders in the oppression and mismanagement plea filed by investors, the larger mission must be to protect what Byju’s represents. It not only represents the potential of Indian startups, but also the aspirations of lakhs of Indian students in tier II and III cities who were able to access high quality english education from the comfort of their hometown. Whether it’s the investors taking back Byju’s under their control, or anyone else, the larger spirit must be towards reorienting the startup to an ed-tech company rather than a sales company.

The writer is Senior Policy Analyst at the Centre for Digital Economy Policy Research (C-DEP); views are personal