Turmoil at Byju's highlights hurdles for India startup scene

Even as India is being hailed as the next global growth story, a crucial building block for that success — its startup ecosystem — is getting pummeled.

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Already stuck in a 15-month funding slump, India’s young companies are in danger of becoming collateral damage to the country’s highest-profile startup crisis in years. Byju’s, India’s most valuable upstart, is in turmoil after missing a deadline on financial statements, skipping payments on a $1.2 billion loan and losing its auditor and some of its board members.

The imbroglio reveals some of the unique challenges faced by India’s entrepreneurs and may spook global investors. The consumer market in India is characterized by more than a billion people with fast-growing but still relatively limited spending power, resulting in intense price competition that makes it harder for startups to reach profitability. And domestic venture capital is scarce, meaning founders need to attract foreign investors who can stomach the market’s risks.