Byju's, run by billionaire CEO Byju Raveendran, was the poster child of India's startup ecosystem and was expected to herald a change in pedagogy at schools and colleges. It reached a valuation of $22 billion in 2022 as its popularity rose by offering online and offline education courses. But in the last year, the company's popularity and valuation have seen a sharp decline with several of the its investors now calling for leadership change at the ed-tech firm.
Byju Raveendran was happily working as a service engineer at a shipping firm. A visit to his hometown in Kerala in 2003, where he helped some friends crack the MBA entrance exam CAT, was when he first realised that he had a penchant for teaching. He appeared for the competitive exam and aced it with a perfect score.
He though rejected all MBA offers and returned to his job, only to score a 100 percentile in the exam again two years later. This led to several people approaching him to help them crack the exam. The demand for his teaching skills grew rapidly, leading to the formal launch of Byju's classes for the CAT exam in 2006.
RISE OF BYJU’s :
In 2011, Raveendran — a teacher and engineer — founded Think and Learn Private Limited, the parent company of Byju’s. Raveendran was born into a family of teachers in Azhikode, a small village in southern India.
The company claimed that the launch of its flagship product, Byju’s — The Learning App, saw two million downloads within three months of its rollout in 2015. The app offers interactive videos, games and quizzes to help students with everyday classes as well as exam preparation. The Covid-19 pandemic brought exponential growth to Byju’s when traditional classrooms shuttered, leading to skyrocketing demand for online learning. In November, Byju’s co-founder Divya Gokulnath told CNBC the company had more than 100 million monthly students on its platform.
Byju’s growth attracted global investors and significant funding rounds including a $1.2 billion in debt financing in November 2021, according to company database service Crunchbase. Flush with funds, Byju’s went on an acquisition spree between 2017 and 2021. Some of Byju’s biggest acquisitions include Aakash Educational Services, a leading test-prep company in India, which it reportedly paid about $950 million for in 2021.
Other strategic acquisitions include U.S-based kids’ digital reading platform Epic ($500 million), educational games maker Osmo ($120 million) and online coding school WhiteHat Jr.
“2022 would be the year of maximum acquisitions, nine big ones. So the pandemic was great, because it solved the biggest challenge of people not knowing about how online education can be a part of mainstream learning,” Gokulnath told CNBC in November last year.
“But the disadvantage was also that we had to grow at a frenetic pace. We had to grow to ensure that we were able to meet the demand,” she added.
WHAT’s THE ACTUAL PROBLEM WITH BYJU’s – CRISIS EXPLAINED:
Byju's valuation started to take a hit in 2023 when the demand for online education started to subside, especially with more competition in the industry. In April 2023, the ed-tech firm's struggle began when it came under the scanner of the Enforcement Directorate (ED), with three of its offices raided under provisions of the Foreign Exchange Management Act (FEMA). ED slapped a FEMA violation notice on Byju's worth ₹9,362.35 crore. Legal troubles continued to mount for the ed-tech company after one of its foreign lenders ended up filing a lawsuit against Byju's in 2023.
US-based investment firm Redwood cut a loan of $1.2 billion to Byju's in November 2021, but the ed-tech firm failed to make a quarterly interest payment of ₹330 crore. After being faced with a lawsuit, Byju's further filed a case against Redwood for “accelerating its demand” to pay the loan. This prompted several high profile exits from the company, including three of its board of directors - GV Ravi Shankar, Russell Dreisenstock and Vivian Wu. Deloitte, the financial auditor of the company, also resigned in 2023.
The year 2023 saw thousands of layoffs across all departments in Byju's and constant payroll interruptions as the company attempted to cut costs, sparking a backlash against founder and CEO Byju Raveendran. In November 2023, a US court ruled in the favour of the lenders, saying that there was nothing wrong with consortium of lenders of Byju's appointing a director on a special purpose vehicle (SPV) that borrowed $1.2 billion, and removing Riju Raveendran, brother of the CEO, from the SPV's board. With pressure from lender's mounting on Byju's, the company decided to further cut its valuation. Byju's is currently seeking to raise $200 million against a valuation of $250 million, as investor seek an ouster of founder Byju Raveendran from the board.
As many as six shareholders of Byju's parent company Think and Learn Private Limited moved the resolution to fire CEO Byju Raveendran. However, the company pushed back by saying that shareholders don't hold the authority to vote on CEO change. Aggressive marketing tactics and financial mismanagement have also played a significant role in the company's downfall. Sponsorship of major events and celebrity endorsements strained its financial standings, leading to a $1.2 billion loan default in 2021.
The company's failure to file timely financial reports also raised questions about its stability. Byju's delayed the filing of its 2021/22 financial results by nearly a year, prompting auditor Deloitte and three board members to quit. Its chief financial officer and chief technology officer also quit in November 2023. By November 2023, Byju's founder had to mortgage personal properties to secure a loan for employee salaries.
The company initially aimed to make students love learning and gained Traction, Valuation, and Strong Brand Value. However, it became a money-making machine (MMM) and neglected the values delivered to customers. The company added features to make it attractive and attract investors and buyers, but these features did not serve their purpose. While children enjoy audio-visual resources, they do not become interested in learning and exams.
REASONS FOR DOWNFALL:
When the Covid pandemic hit, Byju's saw an opportunity to promote online and went all out with marketing. Their business boomed between Mar 2020 to Oct 2020. It acquired several ed-tech startups, not just in India but also in the US, as it tried to expand rapidly.
During COVID-19, the company sponsored the Indian cricket team, the Football World Cup, and even signed football star Lionel Messi as a global ambassador.
But growth has slowed since classes resumed, and the company's challenges have been exacerbated by the months-long legal dispute that's only showing signs of intensifying.
Byju's revenue has remained steady, but its losses jumped from ₹ 252 crore to ₹ 4,564 crore in just one year between 2019-20 and 2020-21.
WHAT’s NEXT:
The latest blow to Byju's comes in the form of shareholders moving a resolution seeking the ouster of the founders from top leadership roles, including CEO Byju Raveendran. Some of Byju's investors say the company's valuation has fallen to between $1 billion and $3 billion.
"The company and our employees are paying the price for a stand-off triggered by some investors," Byju's said.
Byju's, which is currently raising $200 million through a rights issue of shares, said such capital is "pivotal for a successful turnaround" and it has received support for the capital raising from multiple shareholders. The success of the ongoing capital-raising effort will likely play a pivotal role in determining the company's ability to execute a successful turnaround.
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