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
Paytm, once the star of India's fintech world, has been mired in controversy since March 2022 after the Reserve Bank of India ordered the fintech giant's banking arm to stop accepting new customers with immediate effect. There is.
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.
Paytm, which is not yet profitable, is reportedly under investigation by the Federal Fraud Enforcement Bureau for alleged violations of foreign exchange laws.
One97 Communications, Paytm's parent company, announced in an exchange filing on February 26 that its founder and CEO, Vijay Shekhar Sharma, has resigned from the board of directors of Paytm Payments Bank.
During the pandemic, Paytm capitalized on India's digital payments boom and reported a 3.5x increase in transaction value. Investors including SoftBank, Alibaba Group and Ant Financial bet big on Paytm, but the stock has fallen more than 70% since its IPO in November 2021.
Local media reports that SoftBank and Ant Group are currently reducing their stake in the payment company.
“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. Indian edtech startups have seen their valuations plummet from $22 billion to $1 billion and are facing a series of problems, including 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.
According to Bloomberg on July 11, the Indian government has reportedly ordered an inspection of Biju's financial and accounting practices, putting the company under intense scrutiny.
“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.
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.
According to the Economic Survey of India 2021-2022, the government recognized over 14,000 new startups in 2021. In contrast, in 2016-2017, there were only 733 companies.
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.
Venture funding for Indian startups reached a record high of $41.6 billion in 2021, according to 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. The stake was recently reduced to $1 billion after BlackRock reduced its stake in Biju last month, according to media reports.
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 significant stress in the market.”
Byju's has been facing cash challenges and announced in January that it would raise $200 million in equity to eliminate “imminent debt” and other operating costs. The company is reportedly struggling to pay off debt and pay employees.
“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.”
