India Tech's Vow to Rival China Falls Apart.

"The Indian edtech company Byju's was the poster child of the Asian country's startup boom, attracting a lofty valuation while meeting the needs of millions of students across the country as the pandemic hurt their access to schools and education.

It is turning out to be a symbol of everything that went wrong with India's promise of creating internet companies to rival such Chinese titans as Alibaba and Tencent. The country's hot startup ecosystem, which lured such investors as SoftBank and Tiger Global, is facing questions on financial accountability and discipline, expensive acquisitions, heady valuations and whether investors overestimated India's total addressable market, or TAM. Public listings were delayed, and layoffs are almost a daily occurrence.

Last month, India's financial-crime-fighting agency, the Enforcement Directorate, raided the premises of Byju's in Bengaluru on suspected violations of the Foreign Exchange Management Act and claimed to have seized incriminating documents. What is on paper the country's most highly valued startup maintains that it is confident the matter will be resolved in a timely and satisfactory manner.

The company, which was last valued at $22 billion, stumbled from one controversy to another over the past year as a funding winter set in and investors started questioning their portfolio companies on cash burn, acquisitions and the basic economics of running a business.

Byju's hasn't filed its financial results for the past two years, and the accounts filed for the year before raised eyebrows on uninspiring numbers. Investor BlackRock marked its investment down by nearly 50%, according to local media reports in March, at a time when Byju's expected growth hasn't even remotely materialized. All of this is going to make raising its next round extremely difficult.

The problems aren't all company-specific. Investors in the country's startups are coming to realize online spending is driven only by a minuscule percentage of spenders from India's overall internet population and it might take a while before the spending power is more evenly distributed. According to a recent report by Blume Ventures, about 45 million users account for 50% of online spending out of the overall 850 million Indians using the internet. India has seen a sharp drop in consumption outside the top 30 million households.

Only 26% of India's households earned more than $10,000 in 2021, according to a Morgan Stanley report last year. This is a sobering reality for those such as McKinsey Managing Partner Bob Sternfels, who declared it isn't the decade but rather the century that belongs to India.

After a few years of aggressive business expansion and acquisitions, Indian unicorns find themselves in a severe cash crunch. Mass layoffs and scaled-back operations have now become a norm as unicorns resist the unpleasant possibility of raising the next rounds of funds at much lower valuations. According to data provider Tracxn, Indian late-stage startups raised only about $17.6 billion in 2022 versus $35.3 billion in 2021.

If the Fed's tightening cycle doesn't end soon and the developed economies slip into a recession, Indian startups might have to soon swallow the bitter pill of a down round. As Byju's instructors might say when the sums don't quite add up, investors in India's startup scene clearly didn't do their homework. They are learning their lesson." [1]

1. India Tech's Vow to Rival China Falls Apart. Mandavia, Megha. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 11 May 2023: B.12.