The race to evaluate startups in India should not be reckless

There is an old saying that crisis is all you need to separate the strong from the weak. The economic crisis of rising interest rates and shrinking systemic liquidity is casting a shadow over tech startups that have fed years of easy money and tidal waves of offshore investment in the form of private equity and venture capital (PE/VC) inflows. Rhinos withered one by one in India under pressure, but the problems that highlight them are those of educational technology leader Peugeot. The company’s results for 2020-21 were finally released last week after an 18-month delay. Her auditor had requested changes and two disturbing facts were revealed. First, the company was cheerfully booking undeserved revenue, due in the future but not yet earned, inflating its top line and valuation. Byju’s now showed losses RRs 4,589 crore for the year 2020-2021, on the back of consolidated revenue only R2,428 crore, reflecting the write-off from previous years. It took other liberties in accounting. It was also remiss, for example, in its processing of the element of interest paid to it in exchange for its transfer to associated lenders by subscribers who took out loans to cover their fees.

The second embarrassing thing about reframing Byju’s accounts is the apparent lack of basic governance standards in unicorns that seem to have been well received by many private entrepreneurs/ venture capitalists. In an astonishing number of startups, institutional investors seem willing to condone reckless accounting acts, violations of HR policies, or deliberate loopholes in the conduct of board business (sometimes extending to folly in financial flows) as long as executive staff manages to maintain Top line growth at any cost, which will then be reflected in higher business valuations. Then a profitable exit appears to be the sole focus of their investment, even if this short-term tendency leaves the organization shattered. Byju’s website boasts a long list of notable investors – Sequoia Capital, BlackRock, General Atlantic, Tiger Global, Tencent, Naspers Ventures, International Finance Corporation, among others – yet all of them fail to spot their bookkeeping anomalies or use their power as major financiers To force a path correction.

The unfortunate outcome of the Byju episode will be the repercussions being felt not only in the edtech sector, but across the entire startup world. It is illogical that the Indian education sector, especially at the primary and secondary levels, needs significant investments; Corrupt state and central governments unwilling or unable to invest the required sums have left a void for the private sector to exploit. However, private players, particularly edtech startups, have shown a confused sense of priorities. By using a hybrid platform to offer educational modules and even work with the state, they can provide a partial solution to a national problem by filling a huge gap in our social infrastructure. This paper is not against companies that make money from critical services, but it does warn of a destructive race for ratings that invite instability, impair quality and push back other stakeholders. The stock market listing exposed the structural weaknesses inherent in many unicorns, which include suspicions of deliberate price inflation. The emerging tech world is supposed to thrive on innovation, and the last thing it needs is the heavy hand of regulatory intervention.

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