Moneycontrol Pro Panorama | Start-up ethos put to test

In start-ups, the onus lies with the founder-promoter for a considerable period of time.

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After several years of hype, there are tremors threatening the world of start-ups. In the news is Paytm (One 97 Communication), whose shares are tumbling into what seems to be a bottomless pit. The fintech stock’s market capitalization is down 66 per cent from its 52-week high. Investors are fleeing it after the Reserve Bank of India (RBI) decided to virtually down the shutters on Paytm Payments Bank after a host of compliance lapses and other alleged transactional irregularities.

Is the contagion spreading to other fintechs? Often regulatory audits trigger a series of related follies or scams often involving more companies. Today’s news report in Moneycontrol states that apart from Paytm, four more companies are under scrutiny.

This is not all. India’s start-up edtech icon Byju’s is battling inquiries on grounds of financial irregularities, misgovernance, non-payment of salaries and the ire of disgruntled customers. Albeit not in the listed universe, the company’s valuation has reportedly crashed from $22 billion in October 22 to as low as $200 million now. Indeed, even before this, several edtech firms unable to weather competition and high cost of business shut shop last year, stories of which may not have come to light even.

To be sure, such deep value erosion, the damage and hurt caused to scores of stakeholders cannot be brushed under the carpet. But the important question is: who is to blame? More intriguing is the fact that it is the sector leaders that are lately falling from grace.

One way of looking at this is to believe that such misgivings and shakeouts happen in a sunrise industry that is maturing. After all, history shows that regulation lags innovation and innovation is meant to be disruptive, in that, it brings in new trends that challenge older practices. The case of Zomato and Swiggy in food supply and delivery or, Uber and Ola in the public taxi system, are examples of disruptions.

But in start-ups, the onus lies with the founder-promoter for a considerable period of time. “The fiduciary responsibility when taking funding needs to be respected", says Chandu Nair in this article where he analyses the Byju’s fiasco. When the company becomes subordinate to the ego of the entrepreneur, this hurts institution building.

Often, unbridled expansion after tasting success in one industry or indiscriminate deployment of funds have met with failures. In contrast, Nair’s article highlights constant reinvention at Amazon quoting what founder Jeff Bezos referred to as “every day is Day Zero at Amazon”. Indeed, there are more success stories in the realm of start-ups that hold out promise for anyone who dreams of entrepreneurship. Uber, Airbnb, Pinterest are some of these.

It finally boils down to putting the company's growth ahead of the individual pursuit, from the entrepreneur's viewpoint. Also, letting go is a skill that does not come easily to everyone.

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