Lack of an overarching vision for creating massive value for the users

What happened to Byju’s is a classic case in the venture capital world. It represents unchecked, selfish, self-centered, money-hungry individuals who think only in terms of high-octane 1000x growth. The founder failed to realize how the VC world works when the funds were heavily invested. Despite the substantial influx of capital, it was primarily directed towards fueling growth. Even after exhausting sustainable avenues for growth, they continued down a path of unsustainable expansion.

How much funding should have gone to the Users value creation? I think Indian founders need to have the backbone of Steve Jobs or Jeff Bezos, where they were able to push back when their board cornered them with growth. They managed to circumvent the pressure of unlimited growth and focus on the value they can create for the customers. When you lose this focus, you go astray. This is what happened in Indian startups, especially Byju’s. Where is this backbone to stand up to bullies in order to create value for your users? That should be paramount, not like now, where they prioritize profitability over growth. It is not profitability; focus on value, and then profitability follows.

While taking VC money to grow, it’s crucial to stand up to the pressure of managing growth while simultaneously creating massive value for users. If this focus is neglected, you risk losing out in the end. That’s when you may find yourself in a difficult position. You need to remain steadfast and assertive, even in the face of challenges.

An overarching vision with high-impact value creation for users is crucial. If we examine a continuum where Indian startup founders falter, consider the examples of Steve Jobs and Jeff Bezos. They stood up to challenges, focused on value creation, and ultimately, value creation always prevails in the long term.

R&D

Not Enough Spending on Research and Development (R&D) and Limited Innovation: India doesn’t put much money into research and development (R&D), only about 0.6%-0.7% of its total income compare to an average of 10-15% in US. This lack of investment holds back new ideas in the startup world.

Copying Ideas from Around the World:Lots of Indian startups, especially those in education technology (ed-tech), are known for copying ideas from other countries instead of making their own. This means they’re not focusing enough on thinking of new and different ways to solve problems that people in India face.

On average, Indian startups spend less than 2% of their yearly earnings on R&D, which is less than what companies in other countries spend. In the last ten years, Indian companies altogether spent a huge amount of money, but less than one percent of that went into R&D. In the Financial Year 2022-23 (FY23), they spent only 0.3% of their earnings on R&D, which was a bit less than the 0.4% they spent in FY19.

Revenue/price multiple

Overreliance on Fundraising: Byju’s appears to heavily rely on raising capital instead of prioritizing the development of revenue-generating products. In fiscal year 2022, the company’s fundraising efforts resulted in an exceptionally high price/revenue multiple of 51x. This suggests a substantial dependency on external funding to sustain its operations.

Comparing this to industry standards, where the average revenue multiple for valuing startups varies based on their growth rates, Byju’s multiple of 51x is notably higher and unsustainable. Typically, slow-growing startups with growth rates around 10% per year have revenue multiples between 1x and 5x. Startups growing at rates of 30-40% per year usually have multiples ranging from 6x to 10x. Tech startups with rapid growth rates of 300-400% per year can have multiples between 10x and 20x. Therefore, Byju’s multiple stands out as significantly higher than what is considered sustainable in the industry.