Why Byju’s & Dream 11 is a litmus test for India startup story

Not just countries, many companies are going through the same phase of helplessness. One of them is Byju’s, the Indian ed-tech company based in Bengaluru. Their story is well-documented – an impressive rise during the pandemic, a rushed expansion plan, and now – a case study on how not to run a start-up.

Byju’s is in the news again, which obviously means one thing – they are cutting jobs. Reports say – up to 4,000 employees could be fired, even senior management is at risk. It’s part of their new cost-cutting measure.

The mess  

You see, Byju’s is facing a number of financial challenges. But the most pressing one is this – a loan worth 1.2 billion dollars and the lenders want their money back. So, what’s the company’s strategy?

Well, a new CEO took over last week. He plans to shake things up at Byju’s. In the corporate world – that often means firing people. The company presently has 35,000 employees and up to 4,000 of them could be fired – that’s around 12 per cent of the workforce.  At its peak – Byju’s had 52,000 employees. This was during the pandemic in 2021.

But beyond firing people – what is the rescue plan? Reports say, Byju’s wants to bring more students to offline centres. That’s a bit strange though – their whole brand was built around online learning and now, they are going offline.

Another strategy is divesting foreign assets. Remember the famous Byju’s acquisition spree? They were buying ed-tech centres for fun. And that has backfired. The company is now looking to sell off foreign assets like Epic, which was acquired for 500 million dollars and Great Learning, which was bought for 600 million.

Why it matters 

But will it be enough? Byju’s wasn’t just any start-up. It was the start-up in India. Its founder Byju Raveendran had rockstar popularity. And now he is accused of financial mismanagement. Byju’s has lost 75 per cent of its value since last year and thousands of employees have been fired.

They are also facing lawsuits in the US One of them details an interesting revelation. Last year, Byju’s transferred 500 million dollars to a US hedge fund called Camshaft Capital. Their address doesn’t have a hedge fund office though, but a pancake shop. So, the lawsuit claims Byju’s hid the money there. Such stories can be damning and don’t just hurt Byju’s but also the image of India’s start-up industry.

Not just Byju’s 

Dream 11 is a similar case. It’s an online fantasy league for sports – you make a team, you pay some money and if your picks were good, you win big. Basically, it’s betting with some skill involved.

In 2019, Dream 11 became a unicorn (its valuation hit one billion dollars). Today,  the company sponsors the Indian cricket team’s jersey, probably the most coveted marketing real estate.

But this week, Dream 11 got a notice accusing it of evading taxes. We are talking about a whopping Rs 40,000 crore. It’s the largest claim in India’s indirect taxation history. Dream 11 has disputed this and has filed a lawsuit in the Mumbai High Court.

So what’s the deal here? Dream 11 says it should pay tax on what it charges customers, basically, their fees. The government says the total gaming revenue should be taxed and that too at 28 per cent. It’s now up to the court to decide.

What about the India story? 

But legalities aside, there is a story here – both with Byju’s and Dream 11. These were supposed to be India’s success stories – two big, shiny unicorns. And now look at them? One is struggling to repay loans and the other is accused of tax evasion.

These reports are coming at a bad time for the start-up industry, not just in India, but all over the world. This quarter was especially bad. Indian start-ups received 1.5 billion dollars this quarter, which is a five-year low. Despite that, India is actually one of the bright spots. A recent survey looked at start-ups which received more than 50 million in funding and India ranked fourth on their list. Only the US, China and the UK ranked above India.

So the backdrop is a delicate one. There is a global investment winter but India is somehow beating the trend. In that context, such headlines can be counter-productive. They can scare investors away. However, it’s also an opportunity to show financial resilience, a chance to make things right and hold people accountable – the two attributes investors look at too. So, this period of trouble is a litmus test for Indian start-ups. The brave will survive, the others won’t.

from Firstpost India Latest News https://ift.tt/r46QLw0
FP Staff