The Fall of Byju’s | Why Indian Startups are Struggling | Between the Lines with Palki Sharma

[Music] foreign [Music] have you heard of the term unicorn no I'm not talking about the mythical one-horned animal I'm talking about these in business terms a unicorn is a privately held startup company valued at over one billion dollars India has 108 unicorns it's a good number for a growing economy like ours but but most of these companies are not profitable take by juice for example at one point it was one of India's most valued startups the GoldenEye boy of the Unicorn Club but in this last one year it has seen a dramatic downturn investors no longer believe in its potential employees are being laid off and its owner baiju ravindran is no longer a billionaire so what exactly went wrong our Indian startups highly overvalued and is this summer turning into a funding winter more importantly why should you care hello and welcome I'm palki Sharma and on this show we'll try to read between the lines as stated and the unstated the obvious and the hidden to bring you the full story thank you by juice was founded in the year 2011. the founders were baiju ravindran and Divya gokulnath so that's where the name baijus comes from Baidu was an engineer by profession he was coaching students in mathematics so the company started with online videos learning programs for competitive exams but things took a turn in 2015 that's when baiju's launched its learning app by 2018 the app had more than 15 million subscribers by juice became a unicorn it was valued at over 1 billion dollars but the boom really happened during the pandemic everyone was at home they were all learning on their devices so Baidu saw a meteoric rise there was exponential growth it became the growing star of the edtech market and what did the company do next they decided to expand they went on an acquisition spree they acquired a company called white hat Junior another startup in the education technology space or what they call edtech this acquisition was for 300 million dollars then they bought a tutorial chain called Akash this was for 950 million dollars and it did not end here baijus kept adding more companies to a shopping cart the likes of topper epic and great learning they came at a hefty price we're talking about more than two billion dollars but expansion was not the only thing on their mind the company scaled up its marketing too it poured Millions into promotions by juice became the main sponsor of the Indian cricket team it was the official sponsor of the FIFA World Cup it robed in Bollywood star Shahrukh Khan and football legend Lionel Messi all to just promote the brand this was a dream run for baijus but like most good things these two came to an end you see by juice was depending on students to learn online they were expecting them to stay at home but soon the World opened up students returned to schools but baijus kept spending it kept growing investors kept pouring in money they did not expect or predict a downturn which brings us to 2021 that's when the first signs of trouble emerged baijus posted a loss of three 27 million dollars this was 17 times more than 2020 and this was just the beginning since then baidu's has only gone from one Scandal to another first there were complaints by parents they said baiju sales Executives were forcing them to buy courses some of these parents could not even afford them but the baijus executives did not care about that they only care about hitting their sales targets soon there was an outcry about predatory practices baijus was accused of exploiting customers then came the financial troubles the company tried cost cutting not by reducing expenditure but by firing hundreds of employees their troubles continued though in April this year their office was raided in Bengaluru in May byju's lenders filed a suit in a U.S court they accused the company of defaulting payments and breaching the loan agreement in the month of June baijus was in the news again this time for missing an interest payment of nearly 40 million dollars so you get the drift the one celebrated company is now mired in debts and Scandals in 2022 its valuation was worth 22 billion dollars this year it has been slashed to 5.1 billion 5.1 billion dollars it's an extraordinary unraveling also a cautionary tale because this is not the story of just one company this is the story of most of India's unicorns you see in the startup business a company's valuation is everything but more often than not this valuation does not match the real value of the company I know there's a lot of jargon in the startup world like bootstrapping Angel Investors and I'm not going to into all of that but let's talk about the one thing that defines all startups valuation when startups begin they're mostly just an idea there's no value attached to that idea but slowly grows into a business Founders present A business plan to investors investors evaluate these plans and then they put their money into the company now funding for startups usually happens in rounds the first round is called the seed capital and this round is absolutely crucial for things to get rolling but how do investors determine the value of a business there is no set formula but there are a few parameters like the attractiveness of a plan how reasonable it is the appeal of the product in the market and the background of the founders basically all subjective aspects there are some standard metrics like profit after tax or earnings before interest but these are not really considered in most cases it's because most of these startups usually start by running at a loss so that's how startups are valued they're valued on the basis of future earnings even though they have no profits to show the problem begins when these valuations are far removed from reality and this seems to be the case with a lot of Indian startups the likes of buy juice paytm bharatpay swiggy zomato I'm sure you've heard of all of them perhaps even used most of them these are all highly valued companies but they're all burning money you see valuations no longer have any relation to success and profits it is actually a huge problem in the Indian startup ecosystem one report says most early State startups in India are overvalued and this hyper valuation is now coming back to bite them I have some numbers 55 of India's most valued startups remain in a loss they have an average annual revenue of 76 million dollars but how much do they spend an average of 122 million dollars so for every rupee that these startups earn they end up burning one and a half rupees and this may have worked before when there was a seemingly unlimited flow of capital but now inflation is soaring interest rates are rising and capital funding is slowing down in 2022 Venture Capital firms invested 46 million dollars in India this is 29 less than the previous year basically investors are wary it's what many are calling a funding winter so here's the full picture Indian startups are burning money they no longer have unlimited access to unlimited Capital it may look like a downturn but basically this is a reset these companies grew at an unprecedented Pace until 2021 they were valued at Sky High levels and now they're finally being valued at a more realistic level does that mean that the Indian startup economy is failing well no it's just that the bubble is bursting like I said this is a reset Indian startups have immense potential but valuations need to be based on reality not illusions the other problem is often the way these startups function the lack of internal Auditors independent board members and basically due diligence you can say Indian startups are at a Crossroads they need some course correction and growth will follow [Music]

Channel: Firstpost

Views: 1,060,468

Keywords: firstpost, Byjus, india byjus, india, palki sharma, startup, indian startups, byjus ias, byjus jobs work from home, byjus news, startup loan by indian government, latest news, international news, trending news, global news, india startups

Id: 3NuKgNP3PXE

Length: 8min 59sec (539 seconds)

Published: Sun Jul 16 2023