Byju’s: The fall of the most valuable start-up in India
Following recent operational and financial problems, Byju’s, once among the most highly regarded edtech start-ups in the world and a darling of investors during the Covid-19 pandemic, has witnessed a drastic decline in its fortunes. According to experts, it signals a crucial adjustment in the upward trend of Indian start-ups.
According to Shriram Subramanian, the chairman of an independent corporate governance research and advice organization, “Byju’s is a company that has grown too fast too soon.”
Byju’s, which was founded in 2011, released its educational app in 2015. By 2018, the edtech company had 15 million customers, and with great hoopla, it was valued at $1 billion.
It significantly increased during the Covid-19 pandemic when students enrolled in online courses while under lockdown. But in 2021, it reported a $327 million loss, which was 17 times greater than the year before.
The edtech behemoth has since had an astonishing unraveling. Byju’s was valued at $22 billion (£17.28 billion) last year, but Prosus NV, the company’s largest shareholder and investor, has reduced that value to $5.1 billion this year.
Inquiries from the BBC went unanswered by the business.
When kids returned to school after the pandemic, there would be a decline, according to Mr. Subramanian. However, Byju’s continued to expand and investors continued to pour cash into it. They failed to see the warning indicators of a potential slump.
Angel investor and outspoken opponent of Byju’s business strategy Aniruddha Malpani claims the company had “paper fortunes.”
Value and valuation are vastly different, he claimed.
Byju’s went on an acquisition binge in 2021, spending $2 billion to buy edtech start-ups and companies like WhiteHat Jr, Aakash, Toppr, Epic, and Great Learning due to its exponential expansion during the epidemic.
It quickly overtook online payment system Paytm to become India’s most valuable start-up.
Byju’s invested hundreds of millions of dollars in its marketing, hiring Lionel Messi and Shah Rukh Khan as its brand ambassadors. It became an official sponsor of the FIFA World Cup 2022 and the primary sponsor of the Indian cricket squad.
However, in recent months, the business has faced accusations from parents who claim it has broken its promises, pressuring people to purchase courses they couldn’t afford before failing to deliver the promised services. Others claimed that the business took advantage of its clients by using predatory tactics.
At their Bangalore office, a Byju employee creates content for the app. IMAGE SOURCE,GETTY IMAGES
In an effort to reduce costs, Byju’s has fired thousands of staff over the past year.
Former workers lamented the unachievable goals and high-pressure sales environment. In an effort to reduce costs, the company has fired thousands of people in the last year.
The claims made by parents and its former employees have been refuted by Byju’s. The administration has been looking into it as well.
Indian police raided the company’s Bengaluru office in April on the suspicion of breaking foreign currency laws. The business denied any wrongdoing and informed its staff that all legal requirements had been met.
Lenders to the company filed a lawsuit in May in a US court, accusing it of missing payments and violating the terms of the loan agreement, including delaying the release of financial documents for several months. Additionally, the lenders charged the business with misappropriating money through its US-based subsidiary Alpha, a charge that Byju’s refuted.
Byju’s filed a lawsuit against the lenders for claimed harassment in June after purportedly failing to make a roughly $40 million interest payment.
Additionally, it started another wave of layoffs, dismissing close to a thousand workers. The company’s own auditors had more issues in store for it.
Deloitte Haskins and Sells Llp resigned from their position as the company’s auditors, citing Byju’s late submission of its financial results. It affected their ability to evaluate the company’s books, according to the auditors.
Three of its board members resigned shortly after, leaving CEO Byju Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran as the only remaining members.
According to reports, the startup is currently in talks to restructure its debt load.
A shareholder meeting last week reportedly included requests for the CEO’s resignation, although two investors in the company refuted this information.
BigBasket, one of India’s largest online grocers, was launched by serial entrepreneur and angel investor K Ganesh, who claimed that Byju’s had failed to hold itself to the level required of a business of its size.
He calls the delay in submitting financial statements “unacceptable and unconscionable”.
Since the return to normal has been more abrupt than anticipated, the majority of the sectors that profited from the epidemic and developed quickly are now experiencing headwinds, according to Mr. Ganesh. All companies in the edtech sector can attest to this.
According to experts, the pandemic overestimated the sector’s potential.
“Technology by itself will never work,” says Dr. Malpani. Peer-to-peer learning and a safe environment with adult supervision are also necessary.
“Byju’s was essentially selling hardware, like its tablets, with study material that could be found online for free,” he claims.
At the company’s Bangalore headquarters, an Indian student examines the software developed by the education technology startup Byju. Image source: Getty Images
Image caption: According to Dr. Malpani, edtech startups require more than simply technology to succeed.
During the epidemic, these start-ups were valued at “stratospheric, unrealistic levels,” but they are now valued at “realistic levels,” according to Mr. Ganesh.
He continued by saying that venture capitalist-funded enterprises’ “detrimental” board structures are a factor in Byju’s current crossroads.
“With just management, founders, and investors present—each of whom is obligated to safeguard their own interests—there is no one to safeguard the company’s interests. This is in contrast to a publicly traded firm, where regulatory requirements mandate the appointment of independent directors to the board and the chairing of the audit committee by an independent director, according to Mr. Ganesh.
Many experts, including Mr. Ganesh, have been pushing for start-ups to be instructed to operate like publicly traded companies once they reach a certain level.
According to reports, the company decided to form an advisory committee made up of independent directors at the shareholders’ meeting to provide the CEO with guidance and advice on the make-up of the board and the governance structure.
If the business admits its errors and makes a commitment to taking urgent action on all fronts, Mr. Ganesh and Mr. Shriram said it still has time to change direction.
Dr. Malpani, however, thinks Byju’s hasn’t demonstrated the intention to do this.
According to Mr. Shriram, “They need to save as much money as they can, which will give them a long runway and cut costs aggressively, more than just through layoffs.” “Sell off some companies as well to raise money.”
Byju’s has set a deadline of the end of September for the completion of its audit in 2022 and the end of December for its audit in 2023.
Analysts predict that Byju’s current condition will only benefit India’s startup environment in the near term.
Due diligence, founders’ rights, the requirement for independent board members and corporate governance terms and conditions, which had previously been glossed over, will all face harsher regulations, according to Mr. Ganesh.
“India has good corporate governance laws,” declared Mr. Shriram. Investors and other stakeholders should put pressure on Byju’s to provide more.
Analysts claim that investors have short memories for these dips because they are accustomed to dealing with bull and market runs.
“There’ll be another [like this] in two years,” Dr. Malpani predicts.