So what if Byju's is the world's most valuable edtech startup?
So what if the founder of Byju's believes he has attracted more FDI into the country than any other startup?
So what if Byju's investors range from the Chan-Zuckerberg Initiative to Sequoia, some of the world's most iconic names?
If India's most valuable startup cannot come clean on its books, none of the above matters.
It is nothing short of astounding how Byju's, in the face of disgruntled customers, a toxic work culture, and questionable financial practices, continues to project a successful image.
How can a company with such a hollow core maintain the facade of being among the world's most valuable edtech enterprises?
The seemingly Teflon-like ability of Byju's to deflect criticism and scrutiny is difficult to comprehend, particularly given the high-profile nature of its investors and board members.
If Byju's founders and investors cannot ensure routine filings about the company's financials, they are all accountable. Delayed financial filings and disgruntled voices from inside and outside the company are signals that Byju's may have skeletons in the closet that hundreds of crores worth of marketing splurge cannot hide anymore.
In 2022, when Byju's announced it was one of the sponsors for the FIFA World Cup, it followed it up by laying off around 4,000 employees. The reason? Path to profitability.
Why is it that a company that spends hundreds of crores on brand building, including signing Lionel Messi as a brand ambassador, lays off employees and fails to file its financial statements as required by law?
Byju's: A Startup on Steroids
The meteoric rise of Byju's highlights the journey of a startup on steroids, with its insatiable appetite for growth and market dominance taking precedence over all else. In just a few short years, the company's valuation skyrocketed from $1 billion in 2018 to an astounding $22 billion by 2022, fueled by an aggressive expansion strategy and the relentless pursuit of acquisitions. However, this breakneck pace has come at a cost, with cracks appearing in the edtech giant's facade.
As the company pumped millions into marketing campaigns, including the high-profile signing of Lionel Messi as brand ambassador, questions about its financial practices and governance began to emerge. Customers complained of subpar products and services, while employees suffered in a toxic work environment. Despite being legally required, the absence of financial statements further raised eyebrows and cast a shadow of doubt over the company's true worth.
Its unchecked ambition propelled it to the forefront of the global edtech market. Still, it has also exposed the company to the consequences of lax governance, financial irregularities, and a deteriorating reputation.
How did Byju's, India's most valuable startup, manage to evade the scrutiny of its financial practices for so long? What role did the company's board play in overseeing its operations?
These questions demand answers, as Byju's continues to make headlines for all the wrong reasons. The company's rapidly dwindling valuation, disgruntled customers, and toxic work culture all point to a startup prioritising growth at any cost, ignoring the need for transparency and accountability.
The board of Byju's, which only has founders and investors, has remained conspicuously silent in the face of the company's myriad controversies, especially about regulatory filings. This silence raises severe concerns about the board's commitment to corporate governance, accountability, and ethical conduct. Time and again, we have seen the devastating consequences of the board members' failure to provide adequate oversight, leading to the collapse of seemingly successful companies and the loss of livelihoods for thousands of employees.
As the Indian startup ecosystem watches the Byju's saga unfold, it serves as a cautionary tale of the perils that can arise when unchecked ambition takes precedence over sound governance and ethical practices.
The Consequences of a Founder and Investor-Only Board
The governance issues at Byju's are a wake-up call for the Indian startup ecosystem. The company's board, comprising mainly founders and investors, has failed to hold itself accountable for its actions. This lack of oversight has had severe consequences, as the company now faces investigations for financial irregularities and employee complaints.
Theranos, the infamous biotechnology startup once valued at $9 billion, serves as a chilling reminder of the potential fallout when boards neglect their fiduciary duties. Despite mounting evidence of fraud and deception, Theranos' board members failed to intervene, resulting in the company's spectacular downfall. The implosion of Theranos destroyed the wealth of investors, left hundreds of employees jobless, and damaged the credibility of the healthcare industry.
Similarly, the German fintech firm Wirecard collapsed in 2020 after a massive accounting scandal exposed €1.9 billion in missing funds. Unfortunately, the company's board failed to act on red flags and allowed the deception to continue, culminating in one of the most significant corporate frauds in recent history. Once again, the failure of the board to ensure transparency and accountability led to devastating consequences for employees, investors, and the fintech sector.
These examples are stark reminders of board members' crucial role in safeguarding the integrity and long-term viability of the organisations they serve. By failing to uphold their responsibilities, board members contribute to the erosion of public trust in business institutions and put countless employees' livelihoods at risk.
The failure to do so risks tainting the reputation of Byju's and the broader edtech sector, undermining the credibility of startups and the trust of the customers and employees they depend on for success.
The Role of Independent Directors in Startup Governance
As startups such as Byju's continue to grow and wield significant influence, the importance of solid governance becomes increasingly apparent. This includes appointing to the board independent directors who can provide an unbiased perspective and serve as a vital check on the decision-making process.
Independent directors bring diverse expertise, experiences, and insights to the table. They challenge conventional wisdom, ask tough questions, and help to identify potential risks and opportunities. As Reid Hoffman, co-founder of LinkedIn and partner at Greylock Partners, stated, "Independent board members help set a tone of accountability, which is important for a company's long-term success."
Byju's current predicament is a stark reminder that startups, especially those with high valuations, must prioritise governance and accountability. Independent directors are crucial to maintaining a company's long-term health and sustainability, and their inclusion on boards should be non-negotiable.
India's startup ecosystem needs role models that demonstrate responsible growth and transparency. By incorporating independent voices into the boardroom, companies can foster a culture of accountability and ensure that they operate in the best interests of all stakeholders.
The Dark Side of India's Startup Scene: Recent Disasters Expose a Troubling Pattern
Aside from Byju's, India has witnessed other high-profile startup meltdowns that signal a worrying trend of governance and financial irregularities. Two such examples are BharatPe and Zilingo, both facing the severe consequences of such issues.
BharatPe, the Indian digital payments platform, was once a shining star in fintech. However, its fortunes took a turn for the worse when it faced allegations of money laundering and tax evasion in 2021. An investigation by the Income Tax Department revealed that the company's founders had used shell companies and round-tripping to evade taxes and launder money. The fallout from these revelations led to a decline in the company's credibility and trust among customers and investors.
Similarly, Zilingo, an e-commerce platform, saw its fortunes plummet amid claims of financial mismanagement and a toxic work culture. Founded in 2015 to digitise Southeast Asia's fashion supply chain, the startup quickly gained traction and was valued at nearly $1 billion by 2019. However, Zilingo faced accusations of financial mismanagement, including over-reporting revenues and fabricating invoices, which culminated in a mass exodus of employees and a substantial drop in its valuation.
The troubling stories of BharatPe and Zilingo point to a dangerous pattern of questionable and unethical practices across the Indian startup ecosystem. These examples are a stark reminder that growth at any cost can have dire consequences and that strong governance and financial discipline should never be sidelined.
As the Indian startup scene continues flourishing, founders, investors, and regulators must prioritise transparency, accountability, and ethical practices. This will not only prevent similar disasters in the future but also help build a sustainable and robust ecosystem that fosters innovation and contributes to India's growth.
In Search of True Role Models
Many of India's startups have prioritised rapid growth and sky-high valuations over sound governance and sustainable business practices in the race to become the next unicorn. While companies like Byju's may be financially successful, their questionable tactics and lack of transparency have created a deceptive image of success that risks misleading a generation of aspiring entrepreneurs.
For India's startup ecosystem to truly thrive, it is essential that the role models it looks up to are not merely the most valuable financially but also demonstrate clean governance and solid building blocks.
Companies like Zoho, Infosys, and Zerodha offer a refreshing counterpoint to the "growth at any cost" mentality that has come to define much of the startup world. These organisations have achieved financial success and built their businesses on solid governance, employee satisfaction, and customer-centricity.
Zoho, for instance, has grown steadily over the years without external funding, relying on organic growth and focusing on delivering value to its customers. Infosys, a pioneer in India's IT sector, has long been recognised for its commitment to corporate governance and ethical conduct. At the same time, online brokerage firm Zerodha has built a loyal customer base by prioritising transparency, affordability, and innovation.
These companies provide valuable lessons for India's startup ecosystem. They prove that valuations and growth should not come at the expense of accountability, governance, and employee well-being.
(Pankaj Mishra has been a journalist for over two decades and is the co-founder of FactorDaily.)
Disclaimer: These are the personal opinions of the author.