Recent startups struggles due to founders' hubris, says Sorin Investments' Sanjay Nayar

Sorin Investments founder Sanjay Nayar and Accel India founding partner Prashant Prakash in conversation with Moneycontrol's Chandra R Srikanth and Network18's Bodhisatva Ganguli

Startups troubles stem from a dangerous mix of founders’ overconfidence and a reluctance to accept critical feedback, veteran investor and Sorin Investments founder Sanjay Nayar has said.

“There is a bit of hubris that comes into the founder... ‘I know it all. I know what I’m doing. Don’t challenge me. Don’t question me’,” Nayar said while explaining the sense of invincibility that often takes over founders.

This attitude often leads to a failure to listen to crucial feedback. “You hear but you don’t listen,” he said, adding the ecosystem around the founders often hesitates to deliver bad news or question their decisions.

“The ecosystem around them doesn’t want to give them bad news, doesn’t want to question them,” Nayar added, stressing the need for open communication between investors and founders.

The veteran banker and deal maker was joined with Accel India's founding partner Prashanth Prakash at Moneycontrol Startup Conclave in Bengaluru.

Though the duo didn’t name companies in their examples, their comments were in response to the challenges faced by two of India’s most high-profile startups—Byju’s and Paytm, and lessons that can be learned for the larger ecosystem.

Both Byju’s and Paytm have undergone significant challenges in the recent past, each with their own issues.

Once the posterchild of India’s startup industry and valued at $22 billion, Byju's has been embroiled in series of controversies and legal wranglings, as it struggles with allegations of financial mismanagement. The edtech had faced criticism for its aggressive acquisition spree that led to a debt burden.

Paytm, on the other hand, has been struggling to recover since February when the Reserve Bank of India (RBI) shuttered its banking arm over compliance issues. Furthermore, The 2021 IPO of Paytm had sparked a public outcry after several reports marked the share valuation as “expensive”, leading to a subsequent price crash.

Don’t market ahead of yourself: Prakash

Prakash joined Nayyar in discussing the pitfalls these companies faced.

He highlighted the need for a well-established business model before going public.

“You need to be clear before your IPO—is your central business model at that level of maturity and product fit that you can clearly see a path to scaling, rather than discovering new models as you go along? You can't go public with that kind of a mindset.”

Prakash also warned against acquisitions that distract from a company’s main objectives. “Are those acquisitions leading to a coherence in your business model, or is it distracting you?” he said, a likely reference to Byju’s aggressive expansion tactics.

Prakash also stressed on the need to match marketing with product readiness. “Don’t market ahead of your product,” he said, adding it’s important to ensure that what is promised aligns with the product.

Watch the full edition of the Moneycontrol Startup Conclave 2024 here 

(The article has been updated to provide additional context)