What do start-ups expect from govt and regulators amid crises at Byju’s and Paytm Payments Bank? Read on to find out

Once mighty multi-billion dollar unicorns Byju's and Paytm Payments Bank continue to grapple with internal issues and regulatory blows that have shaken India's start-up space, and the edtech and fintech companies are particularly impacted.

A day after we asked industry stakeholders to weigh in on the impact of these setbacks and share insights on the future trajectory of the start-up space in India, more has happened.

Another Wave of Trouble for Byju's, Paytm on Shaky Ground

Late on February 26, One97 Communications, the parent company of fintech company Paytm, announced that founder Vijay Shekhar Sharma has resigned from the board of Paytm Payments Bank (PPBL). “The Company has been separately informed that Vijay Shekhar Sharma has also resigned from the Board of Paytm Payments Bank to enable this transition. PPBL has informed us that they will commence the process of appointing a new Chairman," the company said in an exchange filing.

PPBL has been hit with harsh regulatory limits by the Reserve Bank of India (RBI) — limits that essentially shut down the whole operation following alleged failure to comply with banking norms and KYC requirements.

For Byju's, on February 26, it emerged that the National Company Law Tribunal (NCLT) has registered a new plea filed by four investors against the Indian edtech major. These investors have alleged oppression and mismanagement. This is the fifth legal challenge against Byju’s filed in the NCLT and the fourth in 2024 alone.

As per the NCLT website, the suit names Byju’s founder Byju Raveendran, his wife Divya Gokulnath, his brother Riju Raveendran, and nine other entities as respondents.

Besides the NCLT blow, money laundering accusations against founder-CEO Raveendran, belligerent investors' efforts to oust him from the company, and the Enforcement Directorate accusations related to the Foreign Exchange Management Act (FEMA) are also knocking on Byju's doors.

What Can We Expect From the Government?

When asked for their perspective on the actions and reassurances they desire from the government and regulatory authorities, especially in light of recent regulatory actions against Paytm Payments Bank, industry stakeholders had a variety of responses.

BharatPe founder Ashneer Grover, in an interview with MirrorNow, highlighted the lack of legislative support for large start-ups in India and called for a more supportive regulatory environment.

A disappointed Grover said, “Seems to be a $20 billion glass ceiling and the moment you hit it, it seems the only way to go is down. Structurally we in India are not ready for big start-ups. Over the last 10 to 12 years, startups in India have emerged organically, and people in the government are eager to click pictures with founders but in terms of legislation there has been no move.”

"We have 111 unicorns but none of them is considered systemically important for the economy, but these startups have driven the 6-7.5 per cent GDP growth rate that we celebrate. They have brought in maximum foreign direct investment (FDI) in India and created a maximum number of jobs, but see zero legislative support and as they become big, you see these public problems," he added.

Neokred CBO Vivek Sridhar also urged the government to create start-up-friendly policies and regulations. "Every start-up is bootstrapped when they commence business, and constant regulatory changes and policies will affect the go-to-market plans and strategy, which will in turn lead to higher burn of funds, due to which many start-ups perish even before they get their first round of funding. The success rate of start-ups today is just 10 per cent. The government should focus on increasing the success rate, which will eventually lead to the country's vision of becoming a Vikshit Bharat," he added.

Amit Goel, Co-Founder and Chief Global Strategist at Pace 360 suggested the easing of regulations for growth — especially in compliance and FDI, and the need for clarity in regulations to enable effective planning. Further, he said that extending tax benefits and simplifying credit access can incentivise startups, enhancing their growth potential. "Clear, consistent regulatory guidelines would also assist startups in planning operations effectively, avoiding unnecessary compliance hurdles," he noted.

Anirudh A Damani, Managing Partner at Artha Venture Fund hopes for a more strategic vision from the government and regulators aligned with broader national objectives. This, Damani says, will ensure that "our startups are not only compliant but also contributing positively to the country's future". He added that this will also enable clear insights to guide innovations within the regulatory framework.

Mayuresh Raut, Managing Partner at Seafund, advocates for a "balanced and transparent" oversight, adding that "constructive policy and smart regulation, along with accountability for misconduct, can help rebuild trust in the ecosystem".

Could the National Start-up Advisory Council Bridge the Gap?

The National Start-up Advisory Council (NSAC) was originally constituted in January 2020 to advise the government on measures needed to build a strong ecosystem for nurturing innovation and start-ups in the country.

The term of non-official members of the council was for two years and was recently reconstituted in December 2023, inducting new members including Zerodha's Nithin Kamath. The council meets regularly to suggest measures such as fostering a culture of innovation among citizens and students in particular; and promoting innovation in all sectors of the economy across the country, including semiurban and rural areas.

Raut views the NSAC as "a key entity" that can play a "bridge between the public policy regime and our dynamic tech sector".

Sridhar agrees that the council has a critical role in shaping the ecosystem. "They play a crucial role in nurturing innovation and sustainably driving economic growth. The NSAC has special schemes promoting women's entrepreneurship, incubators and state-specific policies for start-ups; and helps seed funding, investor connections and credit guarantee schemes. It will play a crucial role in the coming years in shaping up the start-up ecosystem," he told Mint.

Goel believes that it can provide multifaceted support from guidance and mentorship to addressing critical issues such as fundraising, governance, and compliance. "The NSAC has the potential to be a strong advocate for policies that enhance the startup environment, advocating for easier access to capital and talent. It can serve as a vital bridge, facilitating connections between startups and key stakeholders, including investors," he added.

Damani feels the council can bridge innovation and regulation for the startup space, in the role of a mediator by facilitating constructive dialogue. "With the advent of transformative technologies like generative AI, the council's role becomes even more crucial, guiding startups through emerging challenges and ensuring their innovations align with national objectives. This mediator and educator role is pivotal in preventing public fallouts and fostering a collaborative environment," he added.