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> Before they could build enough scale to reach profitability, the startups ran into obstacles familiar to Indian companies: red tape, unpredictable regulators, intense competition, consumers’ limited spending power, and founders’ eagerness to prioritize growth over the sustainability of their business models.

Truly makes you appreciate the set of conditions that allowed SV to develop over time, and how difficult it is to replicate this elsewhere.

> founders’ eagerness to prioritize growth over the sustainability of their business models.

Isn't that prevalent in SV?

All the points are prevalent other than the red tape.

But it’s not clear at all that red tape has anything to do with the problems these companies are facing.

Considering that several of the companies mentioned in the article have corporate governance issue, arguably the problem is a lack of regulation. Or at least a lack of good regulation and/or implementation of the regulation, as opposed to red tape.

The biggest problem in India is thinking they can permanently buy customer loyalty by offering big discounts in the beginning.

This is where the 'intense competition' is dangerous part comes from. After you have spent billions on subsidising prices for the customer, newer companies come, and do the same. The customers see no issues in now buying from the newer companies. The older companies find themselves in a hard position with no profits and big debts.

In India customers are loyal to only one thing 'cheap prices'. Thats all there is to this story. Many times even if there is no real competition, you are often competing with the customers mindset itself.

How does this explain the phenomena of e.g. Repeat Mercedes-Benz buyers, even when other automakers offer the same luxury features at a lower price point (such ad Audi, BMW, etc...) ?

Most of Indian consumers (or consumers anywhere) aren't Mercedes customers. The luxury market is notoriously price insensitive.

The same applies for Toyota customers in India, or so I've heard, viz. Nissan, Hyundai, etc...

There’s a big difference in customer psychology when you’re dealing with a luxury good vs tech products.

Yeah profiting after getting network effect or monopoly or growth is a function of customer inertia in the face of rising prices. And India has way lower inertia to than US.

Consumer's limited spending power should not be discounted. I worked for an Indian startup and it was clear that India gives you the user numbers to show growth but you are never going to able to monetize it because you can't squeeze blood from a stone. The typical strategy is use India to build and test products, and market to first or second world countries. The _only_ startups that could turn a profit were the fantasy gaming and gambling ones. Ultra predatory business practices and powered by addiction and the fact that UPI enables zero transaction costs on small amounts so they can make a profit with individual sales as low as a few cents.

This is one of those modeling exercises where you need a scalar not a Boolean to correctly understand the effect.

“Growth over sustainability” is a problem in proportion to how scarce funding is for your company size. (If you have a SoftBank willing to write huge series Z rounds then you can prioritize growth over sustainability for a decade.)

> red tape

I would attribute red tape to only fintech companies. Ideally edtech should have had redtape considering how much rampant these VC funded companies ran riot.

Also, SV has these red tapes too. Bloom Tech -> California BoE anyone? Red tapes are not always a bad thing for the consumers, maybe for those following grow fast and break model.

BYJU was a fucking scam from the get go . It preyed upon the insecurities of the Indian parent.

Paytm : maybe UPI becoming a standard in Indian banking has something to do with it. UPI is a good thing.

Paytm: Here the issue was that they were not meeting RBI (Reserve Bank of India) compliance for their banking license. So RBI revoked their banking license which prohibits them to process UPI transactions by themselves. So this causes a massive exodus of UPI users from PayTM app. Later PayTM partnered with some other bank and resumed those services again.

Byju's was perplexing as almost every customer of theirs and the target customers knew what Byju's was doing except those in the board, the VC analysts and LPs.

Most Indian kids who could possibly buy Byju's products, could already afford 1 - 1 tuition. That is after a full day's school work, which in itself is a lot given the sheer gruelling regimen the kids go through- Having to work through class work, home work, unit and term tests.

Many schools also offer integrated JEE curriculum and testing.

It was a scam from the very beginning. Its like selling videos of tourist spots to people who can actually go to those places and see it themselves.

Except for the Intense Competition part. We could use more of that, not less.

What do you mean? It's an intensely competitive process to get approved by the VC mafia, who then get to dictate which space you get to monopolize

Ive been told about this phenomena from executive types.

I've said "no way would someone pay 50M for a company that only generates 1M in profit per year."

They responded: "Its not about the profit, its about the potential."

Well, the potential could also be calculated, and it still wasnt going to be 50M. They replied:

"Sometimes people just want the assets the company has"

So its finding a greater fool? Given the rise of Tesla's stock, I'm beginning to trust myself, more than the 'analysts'. People typically arent so outspoken about finding greater fools, but that seems to be the most important thing to get a big valuation.

The unspoken/unwritten thing here is that some VC backed businesses like this one are attempting to monopolize entire markets and destroy them to leave behind a highly profitable monopoly or oligopoly. It's a form of warfare where money is used as ammunition. Instead of merit based natural growth there is a full assault on existing market players and it is very costly. Sometimes you won't win the war, as we see here.

>>"Sometimes people just want the assets the company has"

If I take a loan to buy a home, I would be considered to be in debt. In the start up world, if you take money from some one, they think about it as their valuation increasing. This weird word acrobatics is used to take what is a bad condition as something that is awesome.

Like Confucius said- "Beginning of wisdom is to call things by their correct names".

Call it what it is. Its a debt, and nobody in the history of the world who didn't make money(profits) was able to pay off their debts. One can find a greater fool, and in fact that is exactly what happened in PayTMs case. The VC just recovered their money from retail investors.

WhatsApp, with 0 revenues and no clear business model was acquired for $19.3 billion (in 2014 US dollars). It had no assets to speak of, just decent market penetration of a cheap and relatively moat-resistant market.

> [WhatsApp] with 0 revenues and no clear business model

That's not true?

  DigitalTrends lets us in on WhatsApp's business model, said to pull in about $100 million in revenue...

Conversation metadata surely has a price to a company factoring in billions in privacy related fines to run their projects

> no clear business model

Here lies your error. They clearly had a business model worth 19b, just not the traditional one you would expect and it paid out for Meta, saving the company to keep their relevance since the youth doesn't use facebook anymore.

To be fair, the youth dont use either Instagram or WhatsApp for communication anymore, so it only delayed their irrelevancy.

What do they use instead?

The conversation metadata surely has a price for a company factoring in billions in privacy related fines to run their projects

https://archive.ph/xPYBs

Thanks for the readable archived version.

Much previous discussion of Byju’s, Paytm:

"Two of India's most prominent startup tech giants are in deep trouble" 2/2024 https://news.ycombinator.com/item?id=39260796

"Byju's, once valued at $22B, pushed into insolvency proceedings" https://techcrunch.com/2024/07/16/byjus-once-valued-at-22-bi...

"The rise and fall of Paytm, which once had India's largest IPO" https://fortune.com/asia/2024/03/09/paytm-payments-bank-crac...

Zomato and Flipkart have multi billion $ exits.

What appears to have happened is a classic bubble with exuberance well beyond the fundamentals which propped up fundamentally unstable companies and misallocated capital.

The market will respond like it does after every bubble. By swinging to the opposite end of the spectrum which will put immense pressure on the existing companies and the ones that survive in this adverse environment will be the actual good companies which can then grow going forward.

Flipkart hasn't yet had an 'exit'. Once Amazon got big, their usage among the masses has declined. The web site is arguably not as good as Amazon and search looks broken tbh.

I think most of their sales comes from Myntra?

The hope is that retail investors will bail them out absorbing losses.

There is an often less discussed point here about investing in developing markets. [1] Tweet here goes into more details. The gist is that investor distribution is barbell shaped. Hence, any company which crosses a particular chasm of raising say, $100M or so round (I made the number up, could be anything), more investors look at that as a safe bet and hence they raise further rounds. The credibility somewhat comes from the captable and market leadership. Not sure about other ecosystems though I think it will be a feature of many such ecosystems in growing economies.

[1]: https://x.com/banglani/status/1691325750715326464

> The credibility somewhat comes from the captable and market leadership.

  But frankly the most important reason investors like you more when you've started to raise money is that they're bad at judging startups. Judging startups is hard even for the best investors. The mediocre ones might as well be flipping coins. So when mediocre investors see that lots of other people want to invest in you, they assume there must be a reason. This leads to the phenomenon known in the Valley as the "hot deal," where you have more interest from investors than you can handle.

This is true at early stage when there aren't many clear signals. When this is happening at the middle/late stage, where there is a clear market (created or existing), a mature product, and years of numbers/traction/track record to go by, then it puts ecosystems in a fix. That is what the tweet also points out.

This is another advantage silicon valley likely has. There are more funds in middle stage who would lead a round and gives confidence to early stage investors to not look at much of the existing competition, unless it's too crowded a space.

byjus had a toxic internal culture and predatory sales practices. during pandemic, byjus was a sink hole for edu startups (and killed so many others). Thank God it imploded. guess how bad they had to screwup if they had to imploded 'The edu startup of the country' where education is valued so much and education is one of the very few sectors where people here are willing to pay premium for the quality. I don't blame red tape for this (although it's bad). FWIW, byjus had lot of govt projects (still has) all VCs failed to see that they didn't have any moat.

From the start, both Byju’s and Paytm had some pretty sketchy aspects. It was baffling why investors kept pouring money into them despite all the red flags.

That said, let's not panic. Apart from these two, there are plenty of other Indian tech companies that are doing really well.

I would take this article as a pinch of salt. The examples mentioned in the article are bad. Both the companies were unethical sometimes even borderline wolf of wall street level scam…

It's sort of ironic how it's easier to build complex government regulation which inhibit growth, than it is to build simple regulation that encourages growth.

It’s a good thing. A reality check was needed, startup are high risk high reward but disciplined and transparency make the system work.

And regulators, investors and founders need to realize that which will be better in the long run. True test of this will be 2 years from now when interest rates have come down and then we can see in funding returns or not.

So, why did they fail so hard?

This linked report seems useful: https://www.bain.com/globalassets/noindex/2024/bain_report-i...

I wonder how far that $45B would have gone toward making their water safe to drink.

WTF happened to Byju? The article states "Prosus, an early backer of Byju’s, wrote off its 9.6% stake in the venture after valuing it at $493 million at the end of March.", and there is a linked article with more details at https://archive.ph/BVjYI.

If you go from $493 million to zero in less than three months, with no big catastrophic event in the interim, it was always BS to begin with.

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