Gama Times

Byju's, a Leading Indian EdTech Start-up, Faces Problems with Finances and Operations"

Byju’s, once hailed as one of the world’s most valued edtech start-ups, has recently experienced a significant decline in its fortunes due to a series of operational and financial setbacks. This downward spiral has prompted experts to view it as a necessary correction in the booming landscape of Indian start-ups.

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.” Founded in 2011, Byju’s launched its learning app in 2015 and quickly garnered attention, boasting 15 million subscribers by 2018 and achieving unicorn status with a valuation of $1 billion.

The COVID-19 pandemic provided a substantial boost to Byju’s as students turned to online learning during lockdowns. However, the company faced a significant setback in 2021, reporting a staggering loss of $327 million, seventeen times higher than the previous year.

Consequently, Byju’s has experienced a remarkable unraveling. Its valuation, once reaching $22 billion in the previous year, has been slashed to $5.1 billion in 2023 by its largest investor and shareholder, Prosus NV.

The edtech giant embarked on an acquisition spree in 2021, spending $2 billion to acquire several edtech start-ups and firms such as WhiteHat Jr, Aakash, Toppr, Epic, and Great Learning. These acquisitions propelled Byju’s past digital payments platform Paytm, making it India’s most valued start-up.

However, in recent months, the company has faced mounting complaints from parents who accuse it of failing to deliver on its promises. Parents claimed that they were coerced into purchasing courses they couldn’t afford and subsequently received subpar services. Some even alleged that the company employed predatory practices to exploit its customers. Former employees also came forward, expressing grievances about a high-pressure sales culture and unrealistic targets. To cut costs, Byju’s laid off thousands of employees within the past year.

Byju’s vehemently denied the allegations made by parents and former staff members, but it has not been immune to investigations by the government. In April, Indian authorities raided the company’s office in Bengaluru over suspected violations of foreign exchange laws. Byju’s denied any wrongdoing and assured its workforce that it had fully complied with the laws.

Moreover, the company faced legal action when lenders filed a suit in a US court, accusing Byju’s of defaulting on payments and breaching the terms of the loan agreement, including significant delays in releasing financial statements. Byju’s also faced accusations of diverting funds through its US-based subsidiary, Alpha, although the company refuted these claims. In response to the lenders’ actions, Byju’s sued them for alleged harassment after reportedly missing an interest payment of nearly $40 million.

As the troubles compounded, Byju’s faced additional challenges with its auditors. Deloitte Haskins and Sells Llp resigned as the company’s auditors, citing the delay in Byju’s submission of financial statements, which hindered their ability to assess the company’s books accurately. Furthermore, three board members resigned, leaving only CEO Byju Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran on the board.

The start-up is reportedly engaging in discussions to restructure its debt load. Calls for the CEO’s resignation arose at a shareholders’ meeting, although two investors denied these claims. K Ganesh, a serial entrepreneur and angel investor, criticized Byju’s for not adhering to the standards expected of a company of its size. He deemed the delay in filing financial statements “unacceptable and unconscionable.”

Experts believe that Byju’s current predicament reflects the challenges faced by many companies that experienced rapid growth during the pandemic. The potential of the edtech sector was perhaps overestimated, as technology alone cannot replace the need for a safe space with adult supervision and peer-to-peer learning.

Several experts, including Ganesh and Subramanian, advocate for greater corporate governance in venture capitalist-funded companies. They emphasize the importance of having independent directors and audit committees to protect the interests of the company, as is required in public listed firms.

While Byju’s may still have the opportunity to correct its course, critics, such as Dr. Aniruddha Malpani, an angel investor and vocal critic of Byju’s business model, remain skeptical of the company’s intent to take necessary action. Malpani suggests that Byju’s must conserve cash, aggressively cut costs, potentially sell off some businesses to raise capital, and demonstrate a commitment to immediate action on all fronts.

Byju’s has set timelines for the completion of its audits in 2022 and 2023, aiming to restore confidence in its financial reporting. Analysts predict that Byju’s current situation will lead to stricter scrutiny and regulations in India’s start-up ecosystem, focusing on due diligence, internal auditors, independent board members, and corporate governance practices.

As with any industry, the market experiences both bull and bear runs, and investors often have short memories when it comes to dips. However, analysts caution that it may be only a matter of time before another similar situation arises in the future.

Leave a Reply

Your email address will not be published. Required fields are marked *