Governance and Cash Burn as the Twin Challenges of the Indian Startup eco system

THE GREED TO GROW FAST AND GET VALUED HIGHER MANIFESTS ITSELF IN THE FORM OF HEAVY SPENDS ON SALES AND MARKETING, WHICH MAKES LITTLE SENSE UNTIL THERE HAS BEEN A CLEAR VALIDATION OF THE FACT THAT THE PRODUCT DOES INDEED HAVE A CLIENT BASE WHICH CAN SUPPORT GROWTH.

- BY TULSI JAYAKUMAR, PROFESSOR, ECONOMICS AND EXECUTIVE DIRECTOR, CENTRE FOR FAMILY BUSINESS ENTREPRENEURSHIP AT BHAVAN’S SPJIMR.

The Indian startup system - the third largest ecosystem in the world-faces challenges beyond funding challenges even as India looks at building a strong entrepreneurial ecosystem for nurturing innovation and entrepreneurship in the country.

A key challenge is that of corporate governance within the startup ecosystem. Buoyed by the desire for higher valuations and lucrative exit deals, it appears that multiple constituents of the startup eco system, including private equity firms and venture capital investors, are willing to overlook questionable accounting and unethical business practices.

A case in point is that of Byju's. Feted as one of the fastest growing unicorns, the edtech leader was in the news recently, when its auditor, Deloitte, refused to sign off its financial statements for FY2020-2021, citing accounting issues, troublesome lending arrangements and a constant need for cash on Byju's part as the reasons for the refusal to sign off.