In 2023, India’s startup landscape witnessed upheavals as prominent companies like Byju’s faced trouble. Byju’s failed to file financial accounts, skipped loan interest payments, and faced accusations of concealing a substantial sum.
Funding plummeted by 65.8% between January and November, leading to layoffs at multiple startups, with Paytm alone cutting around 1,000 jobs, marking the year’s largest layoff.
Seeking insights on this downturn, Moneycontrol turned to Saurabh Srivastava, Co-Founder of Indian Angel Network. Srivastava highlighted the pitfalls of raising excessive capital at high valuations, often by founders lacking operational experience. He emphasized the significance of assembling a diverse team with varied expertise, which many startups failed to do. Srivastava remarked, “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.”
He pinpointed the escalation of funding from $10-13 billion to $38 billion in 2021 and $25 billion in 2022, questioning if this “easy money” led to a lack of discipline. Srivastava suggested that companies, pressured by venture capitalists, pursued rapid growth at any expense without considering the quality or sustainability of their strategies.
He stressed the misunderstanding between investor money and customer money, stating, “The most important thing is customer money… If the more I sell, the more I lose, that’s not a sustainable business. So, the day of reckoning will come.”
Regarding founder ethics, Srivastava indicated that easy money had a detrimental effect, leading some founders down unethical paths, enriching themselves while their companies floundered. He noted, “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.”
The year 2023 unfolded as a cautionary tale, revealing the perils of unbridled funding, lack of operational acumen among founders, and the stark difference between sustainable business models and unsustainable growth strategies.
