Byju’s, once hailed as one of the world’s most valued edtech start-ups and a favorite among investors during the Covid-19 pandemic, is now facing a significant downturn in its fortunes due to operational and financial challenges in recent months. This setback is seen by experts as a necessary correction in the booming Indian start-up landscape.
According to Shriram Subramanian, the head of an independent corporate governance research and advisory firm, “Byju’s is a company that has grown too fast too soon.”
Established in 2011, Byju’s launched its learning app in 2015 and quickly gained popularity, boasting 15 million subscribers by 2018 and achieving unicorn status with a valuation of $1 billion.
During the Covid-19 pandemic, the edtech firm experienced substantial growth as students turned to online classes during lockdowns. However, in 2021, Byju’s reported a staggering loss of $327 million, which was 17 times higher than the previous year.
Since then, the once high-flying start-up has witnessed a remarkable unraveling. Its valuation plummeted from $22 billion (£17.28 billion) last year to $5.1 billion this year, as indicated by Prosus NV, Byju’s largest investor and shareholder.
“After the pandemic, when children returned to schools, there was going to be a downturn,” explained Shriram Subramanian. “But Byju’s kept on growing, and investors kept on putting money into it. They did not see the signs that there could be a downturn.”
Aniruddha Malpani, an angel investor and vocal critic of Byju’s business model, suggested that the company had built “paper fortunes,” emphasizing the gap between value and valuation.
During the pandemic-driven growth, Byju’s embarked on an acquisition spree in 2021, investing $2 billion in acquiring edtech start-ups such as WhiteHat Jr, Aakash, Toppr, Epic, and Great Learning. This aggressive expansion allowed Byju’s to surpass digital payments platform Paytm and become India’s most valued start-up.
The company invested heavily in marketing, enlisting Bollywood superstar Shah Rukh Khan and football star Lionel Messi as brand ambassadors. It also became the main sponsor of the Indian cricket team and an official sponsor of the 2022 FIFA World Cup.
However, in recent months, Byju’s has faced mounting complaints from parents, accusing the company of failing to deliver on promises, pressuring them into purchasing unaffordable courses, and then not providing the services as advertised. Some customers also alleged predatory practices by the firm.
Former employees also voiced concerns about a high-pressure sales culture and unrealistic targets, resulting in thousands of layoffs over the past year in an effort to reduce costs.
Byju’s denied the allegations made by parents and former staff and has been under investigation by the government.
In April, Indian authorities raided Byju’s office in Bengaluru over suspected violations of foreign exchange laws. The company, however, denied any wrongdoing and assured its employees that it had complied fully with the laws.
In May, lenders to the company filed a lawsuit in a US court, accusing Byju’s of defaulting on payments, breaching terms of the loan agreement, and experiencing prolonged delays in releasing financial statements. Byju’s denied these claims and rejected the lenders’ accusations of fund diversion through its US-based subsidiary, Alpha.
In June, Byju’s sued the lenders for alleged harassment after reportedly missing an interest payment of nearly $40 million. The company also initiated another round of layoffs, terminating nearly a thousand employees. The situation worsened when the company’s auditors, Deloitte Haskins and Sells Llp, resigned due to delays in receiving Byju’s financial statements, impacting their ability to assess the company’s books.
Additionally, three board members resigned, leaving only CEO Byju Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran on the board.
Reports suggest that Byju’s is currently in talks to restructure its debt load.
During a shareholders’ meeting, there were alleged calls for the CEO’s resignation, although two investors denied these claims.
K Ganesh, a serial entrepreneur and angel investor, highlighted the need for start-ups that reach a certain level to operate with the standards expected of public listed firms. He criticized the board structure of venture capitalist-funded companies, lacking independent directors and strong corporate governance.
Experts, including Ganesh and Shriram, believe that Byju’s can still recover if it acknowledges its missteps and takes immediate action on all fronts. However, Dr. Malpani doubts the company’s intent to make necessary changes and suggests aggressive cost-cutting measures and selling off non-core businesses to raise capital.
Byju’s has set timelines for completing its 2022 and 2023 audits by September and December, respectively.
Analysts predict that Byju’s current predicament will have a short-term positive impact on India’s start-up ecosystem by prompting stricter due diligence, stronger corporate governance, and enhanced regulatory oversight.
Mr. Ganesh concludes, “India has good corporate governance laws… It is for the investors and other stakeholders to demand more from Byju’s.”
Dr. Malpani remains skeptical and expects similar dips in the future for start-ups that experienced inflated valuations during the pandemic.
