Byju's, once the poster boy of India's startup ecosystem, is in the spotlight for defaulting on an interest payment of $40 million, exit of its statutory auditor Deloitte and some board members. The edtech company, which is India’s first and the largest unicorn, is going through a rough patch. Valued at $22bn last year, Byju's has seen its valuation slashed to $5.1bn this year by Prosus NV, the company's biggest investor and shareholder. The company is also facing ire for not filing its financial report for FY22 yet. In 2021, the edtech firm had filed its financials after a delay of 18 months and posted a record loss of Rs 4,588 crore.

Another unicorn Pharmeasy is looking at a $292 million fundraise at a 90 percent valuation drop. With this, the medtech firm will lose its unicorn status as its valuation will come down to $500–600 million from $5.5 billion during the peak of the pandemic. Some other unicorns are looking to take the debt route to sustain amid funding winters. Udaan, a B2B trade platform which wanted to go public in the next two years, has now taken $200 million debt through convertible notes. Quick commerce player Dunzo also took a $50 million loan via convertible notes. With convertible notes, investors have the option to flip their equity at a later stage.

Alarm bells

The developments have raised alarm bells among media and advertising firms which are already facing challenges amid rough macroeconomic weather.

“Most startups have been spending mostly on TV advertising, especially around big sports events like IPL, FIFA and cricket world cup. Hence, ad revenues of TV channels are likely to be affected the most in this fiscal,” a TV executive admitted.

The ad agencies that have more startups on their platter are facing the brunt more than those who have a mix of legacy and startup accounts, an industry leader said, adding that almost all big agencies have some or other startup accounts. Some like Byju’s have their own creative teams as well.

In fact, some of the affected startups have already cut down on their marketing and advertising budgets. They are doing massive layoffs to optimize their operational cost.

Byju’s and some other unicorns have been pumping huge money into marketing over the last couple of years, sometimes many-fold of their revenues, lifting India’s advertising spend to a great extent. Some of them have been the sponsors of some of the biggest sports properties like the Indian Premier League.

Top advertisers

Byju’s had spent a whopping Rs 2,250 crore on promotional activities in FY21 against over Rs 900 crore in FY20. BYJU’s have been among the top 10 advertisers in the country for a couple of years. PharmEasy spent Rs 494 crore on advertising and promotional activities during FY22, up from Rs 134 crore in FY21, according to the ROC filings.

“During the past few years we went through a phase of irrational exuberance. Now we are seeing some reality kick in. There will certainly be a drop in ad spends. Focus will be more of performance marketing rather than brand marketing,” Hareesh Tibrewala, joint CEO, Mirum India opines.

According to the PMAR 2023, India’s AdEx is supposed to grow by 16 per cent in 2023. That means it is expected to cross the Rs 1,00,000 crore landmark. However, considering the current trend, experts are not fully confident of breaching one lakh Cr.

Tough time

The first six months of 2023 saw Indian startups raise a mere $5.46 billion, a substantial 68% decline from the $17.1 billion during the same timeframe in 2022 and a drop from $13.4 billion in H1 2021, as per data from market intelligence agency Tracxn shared with TechCrunch.

This year has thus far failed to yield any fresh unicorns in the Indian startup ecosystem, a stark contrast to the 18 new entrants to the billion-dollar club in H1 2022 and 16 minted during the corresponding period the previous year.

Anil Solanki, Senior Director - Media Lead at Dentsu X, tells e4m, “The ongoing issues at India's largest unicorns will have significant implications for the Indian startup ecosystem and the edtech segment funding in particular. The controversy can erode investor confidence and lead to increased caution among potential investors in the startup space.”

“From a media and advertising perspective, this setback can be seen as a temporary obstacle before a significant leap forward”, Solanki noted.

'Indian startup ecosystem is strong'

Solanki feels that the Indian economy remains a bright spot in the midst of global economic turmoil which will attract the present and new investors in the coming days. Hence, the M&A sector has no reason to worry.

LLyod Mathias, angel investor, echoes the sentiments. “India is a huge market to be affected by the collapse of one or two startups. We have the largest tech manpower and startups are driving the growth of the global south. However, investors will surely go cautious for the edtech category as of now.”