India’s startup ecosystem has become a powerful symbol of entrepreneurial dynamism, attracting both domestic admiration and global interest. With funding rising 15-fold since 2015, and India now the world’s third-largest startup market, there is much to celebrate. However, high-profile failures—from Ola and Byju’s to Paytm and BluSmart—signal that the road to sustainable success is not paved by valuations alone. These cautionary tales underscore a deeper structural issue: a deficit in governance, not just capital or innovation.
The underlying lesson is that rapid scaling, if not matched by institutional depth and managerial discipline, can sow the seeds of collapse. In a market as vast and forgiving as India, even average ideas can find early traction. But without strong systems and transparency, growth becomes a liability rather than an asset.
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Fall of the brightest stars
Consider Ola Electric, once hailed as a leader in India’s electric mobility push. In the April–June quarter of FY26, the company reported a consolidated net loss of ₹428 crore, 23% higher than the previous year, as revenues shrank. While industry-wide challenges—such as softening demand and aggressive pricing by competitors like Bajaj Auto and TVS Motor—are partly to blame, Ola’s struggle also reflects operational shortcomings and customer dissatisfaction. The company’s earlier promises of quality and after-sales service have not kept pace with its marketing hype or production targets.
By contrast, Byju’s has moved from triumph to terminal decline. Once valued at $22 billion and celebrated as the world’s largest edtech firm, the company collapsed into insolvency proceedings in October 2024. The root cause was not market forces but a lethal cocktail of cash burn, unchecked global expansion, opaque financials, and poor board oversight. Key investors such as Prosus and Deloitte exited the board in 2023, citing serious governance lapses. Without credible audits or accountability, investor trust evaporated.
BluSmart, too, serves as a warning. The EV ride-hailing firm abruptly shut operations across major cities in April 2025. Its affiliate, Gensol Engineering, was found to have diverted funds for personal use by its founders. The Securities and Exchange Board of India (SEBI) barred the Jaggi brothers from the securities market. The episode exemplifies what happens when governance collapses under the weight of personal ambition and institutional neglect.
Paytm’s reckoning and the RBI’s red flag
Paytm, once a fintech darling, faced its own reckoning in 2023 when the Reserve Bank of India directed its payments bank to halt new operations. The RBI cited violations of transparency and customer verification norms—issues that surfaced during Paytm’s hyper-expansion phase. The company had famously declared it would make ATMs obsolete. Instead, it ran afoul of basic compliance requirements.
These examples reveal a common pattern: the absence of checks and balances in young companies that grew too fast, too soon. Aggressive customer acquisition, lofty projections, and flashy launches often masked weak internal systems and inadequate accountability.
The systemic gaps
While company-level failings dominate headlines, the ecosystem’s regulatory gaps are equally to blame. India’s corporate governance regime made notable strides with the 2013 Companies Act, mandating independent directors and whistleblower protection. These reforms worked well for listed companies, but they were not adequately extended to startups, many of which operate in regulatory grey zones.
This gap is now becoming costly. Most startup boards lack the independence or maturity to challenge founders or intervene early. In many cases, venture capital firms prioritized growth metrics over governance safeguards, feeding a culture where profitability was deferred indefinitely in pursuit of market share.
Even companies with strong early boards—like BharatPe—have stumbled, though some have since made course corrections. In contrast, traditional Indian companies, though more conservative in their approach, continue to exhibit greater resilience and compliance, even if they lack the startup sector’s glamour.
Building for longevity
The central insight is that scale without systems is inherently unstable. A company with millions of customers but weak internal processes is a house of cards. The most durable enterprises are those that invest in financial transparency, executive accountability, and long-term value creation.
India’s startups must now absorb this lesson. Several promising firms are already facing a funding slowdown, and if credibility erodes further, the long-term damage could be significant. What the sector needs is a generational shift in mindset—from chasing valuations to building institutions.
Governance is not the enemy of innovation. On the contrary, it is what allows innovation to thrive sustainably. The next phase of India’s startup journey must focus not on who can grow the fastest, but on who can build to last.