Easy money spoiled a lot of our founders, says Saurabh Srivastava, Co-Founder, Indian Angel Network

Byjus found itself in the dock for failing to file financial accounts on time.

The year 2023 saw some dramatic turns in the Indian start-up story with India’s star companies landing into trouble. Byjus found itself in the dock for failing to file financial accounts on time, skipping interest payments on its term loan and several US-based investors accused the company of hiding half a billion dollars and so on.

Start-ups saw a 65.8 percent drop in funding between January and November. According to estimates, more than 15,000 employees were laid off by roughly 100 Indian startups in 2023, with Paytm alone laying off around 1,000 employees across units, which was described as the biggest start-up layoff of 2023. To get perspective on the funding winter and start-up failures like that of Byjus, Moneycontrol asked Saurabh Srivastava, Co-Founder, Indian Angel Network, about what went wrong.

“So, again, let me not specifically talk about Byju’s itself, because I have not done a study of Byju's. So, it may be unfair to the company and in general. But I would say, well, companies get into that situation when they raise a lot of money at very high valuations.

And then go south. There are a lot of things that happen. So one is that people who raise the money or the founders have — maybe they never ran a company before. Maybe they never ran a profit centre before. So, they don't know how to build or run an organisation. That's not uncommon among start-up founders.

Now, some people can scale. Some people can't. Some people build a great team. So, if I'm a founder, my strengths may be sales and marketing. But I know how to make the company work. I need a good tech leader. I need a good finance guy. So, I need to bring them on board as co-founders. So, companies, if they don't do that, then they raise a lot of capital. Then it's very high risk because they'll spend unwisely.. that's one of the problems of easy money.”

Srivastava added that in 2021, Indian start-ups raised $38 billion, while in 2022 $25 billion was raised. Before that, start-ups were generally getting between $10 billion and $13 billion. Did easy money lead to indiscipline?

“I think a lot of companies, to some extent, were not disciplined. They were all about raising more money. And in some cases, there was also pressure from the VCs to go for top-line growth. So, I think they just went for top-line growth at whatever cost, didn't worry about the quality of it, but the quantity of it, didn't look at their costs.

I think a lot of people confuse investor money with customer money. The whole thing when you're building a business, the most important thing is customer money. I mean, for me, business means you have a product or service which customers like, are willing to pay for, and you can make a profit at what they are willing to pay you. That's a business.

Now, if the more I sell, the more I lose, that's not a sustainable business. So, the day of reckoning will come,” he said.

Srivastava said, “Easy money spoiled a lot of our founders. Many of the founders, I think, were also unethical in what they did with the money, and how they used it. There are enough stories around, I don't have to talk to you about how they enriched themselves while their companies went down the tube.”

You can catch the full interview with India’s tech guru Saurabh Srivastava on his outlook for 2024, lessons for Indian start-ups and more on Moneycontrol.