Byju’s Was a Slow Train Wreck, Visible to All but Its VCs
On the 17th March, Dr Jitendra Singh, minister of state (independent charge) for science and technology, proudly declared that India was home to five decacorns: Flipkart, Byju's, Nykaa, Swiggy and Phone Pe. These were part of a global assembly of only 47 start-ups valued at US$10bn (billion) or more. India also boasted 108 unicorns (valuation of US$1bn) and 93,000 government-recognised start-ups, said a beaming minister with justifiable pride.
 
Things have gone rapidly south since then. Five listed e-commerce companies (Car Trade, Zomato, Nykaa, PayTM and Policy Bazar) have disappointed investors badly. Each of them, barring Zomato (up 11%), is trading at 21% to 68% below their offer price. And the valuation of Byju’s, the most valuable of them, has crashed after a string of disastrous decisions. In March 2022, Byju’s, with a valuation of US$22bn, established by a US$800mn (million) fund-raise, was India’s most valuable start-up, despite declaring a loss of Rs4,588 crore for the year ended 31 March 2021.
 
Cut to 26th July and social media is awash with images of Byju Raveendran, high-profile founder of the eponymous decacorn, breaking down in tears as he tried to explain his company’s multi-dimensional crisis, even as it struggled to raise another billion dollars and to restructure a controversial borrowing. This was just a day after Netherlands-based venture capital (VC), Prosus, one of the largest investors in Byju’s, claimed that the firm had repeatedly ‘disregarded advice and recommendations’ from its director relating to “strategic, operational, legal, and corporate governance matters.” It also said that it has slashed Byju’s valuation to US$5.1bn, which is less than a fourth of its peak.
 
In June this year, Russell Dreisenstock, who represented Prosus on the board, stepped down along with GV Ravishankar of Sequoia Capital and Vivian Wu of Chan Zuckerberg soon after the statutory auditor had resigned and other compliance violations had become public. They cited differences with Mr Raveendran on operational issues. On 10th July, VCCircle reported that Amit Khansaheb and Vishruta Kaul, two lawyers who were on the board as independent directors, had also resigned.
 
It is now a pattern that when things go wrong, VCs pin the blame on start-up founders. The Prosus statement seems in line with this playbook. Did Prosus and other VCs not notice Byju’s dubious sales tactics, bullying ways and dodgy ethics, even though several credible people had called it over the past two years only to attract nasty attacks from Byju’s? Why did they not apply the break on unreal growth long before things reached a state when the statutory auditor decided to quit? Prosus says Mr Ravendreen disregarded its ‘advice and recommendations’ but provides no specifics. Instead, it will remain with the company and hope to salvage its investment.
 
It is useful to recall the series of stunning developments leading to the Prosus statement. Byju’s is a romantic and inspirational story of the son of teachers with a passion for learning, who set up Think & Learn in 2011 and segued online with The Learning App in 2015. He had already got his first funding from Aarin Capital in 2013, after which it grew ferociously. This has been pumped with 29 rounds of funding to raise nearly US$6bn, with new investors coming in at ever-increasing valuations.
 
Aggressive Tactics
For lenders who are now expressing concerns about ethics and governance, the first red flag should have been the aggressive tactics it used to shut down credible criticism. Remember the case of Dr Aniruddha Malpani, a doctor and an angel investor whose LinkedIn account was suspended when he repeatedly called out the toxic work culture and deliberate mis-selling by Byjus? As a bulk-bracket advertiser, Byju’s allegedly used its clout to get Dr Malpani’s account shut down. Comments to Moneylife’s article on the issue also indicate targeted attacks on the doctor. Other celebrities who spoke out against its toxic sales culture have been subjected to similar trolling and abuse, forcing them to delete their tweets. Unfortunately, targeted troll attacks are now part of a standard corporate toolbox to suppress criticism by employing digital media firms. The same agencies are used to mislead and lure consumers through cooked-up positive reviews.
 
Finally, in December 2022, the National Commission for Protection of Child Rights (NCPCR) also alleged that Byju’s was stealing phone numbers of students and shaming/threatening them to buy its courses. Byju’s initial reaction was a ‘strong denial’, after which it fell in line and promised to correct its ways and introduce checks & balances to ensure positive consent while signing up for programmes and stop its sales agents from going to peoples’ homes. It has since, lost cases in the consumer courts, and many employees have come forward to speak about steep targets and questionable sales tricks. At every new crisis, Byju’s denied wrongdoing until it was impossible to hide the truth. But haven’t we seen the same ethical questions cropping up with other high-profile but controversial start-ups such as BharatPe, Housing.com, Zilingo and others?
 
Legal Compliance
In Byju’s case, its propensity to play fast and loose with statutory and legal compliances all came to a head in a few months.
 
a) It had not been crediting its contributions of employees to the Employee Provident Fund Organisation (EPFO) since August 2022, which is a jailable offence. The dues of over Rs123 crore were cleared only at the end of June 2023 after the EPFO launched a probe.
 
b) Its failure to finalise accounts for FY21-22 in time led to the resignation of its statutory auditor, Deloitte Haskins & Sells (Deloitte), at the end of June. Deloitte said that the company had failed to provide financial records, despite several reminders. Byju’s now has a new chief financial officer and has promised to finalise accounts by the end of September.
 
c) In April, the enforcement directorate (ED) raided Byju’s, seizing laptops and computers on suspicion of foreign exchange violations. Byju’s called it a ‘routine inquiry’, but media reports quoting ED officials said, among other things, that the action was triggered by the company having made huge foreign remittances and had failed to file its accounts.
 
Fund Raising
Byju’s growth has been both organic and through a series of expensive acquisitions (WhiteHatJr, Aakash, Toppr, Epic, and Great Learning) funded by VC money. The COVID pandemic, a shattering time for the rest of the world, was the biggest slice of good luck for Byju’s, since education moved online and the interest in the ed-tech market soared. But while Byju’s announced a doubling of revenues for FY19-20 to Rs2,511 crore, which is pre-pandemic period, in FY20-21, its revenues actually fell to Rs2,428 crore, while losses soared to Rs4,588 crore, a massive 19.8 times jump over those in the previous year. So, the reluctance to finalise accounts for FY21-22 is perhaps self-explanatory.
 
Mr Raveendran remained publicly upbeat as he looked to borrow another billion dollars, perhaps hoping to hide the financial mess until then. But things went out of his hands when Deloitte chose to walk out, triggering resignations by directors.
 
Other management disasters included the decision in March 2023 to sue Term Loan B lenders in the New York Supreme Court for seeking accelerated repayment after it missed a quarterly interest payment of US$40mn. It accused them of predatory lending.
 
Going Forward
As things stand, the lenders have agreed to restructure the US$1.2bn loan by 3rd August (tomorrow). Mr Raveendran has no choice but to seem upbeat. In a teary address, he told employees that the company has “not come this far only to come this far.” But with 25,000 employees being laid off (from the peak of over 58,000 in 2022) and the de-rating by Prosus, the days of stratospheric valuations are surely over.
 
With so many decacorns also disappointing investors post-listing, VCs who funded Byju’s appear to have reconciled to the fact that a big payday through stock exchange listing is unlikely to happen soon and many have slashed its valuation on their books. But this takes the growth pressure off and creates room for some sober thinking and downsizing to ensure survival until it can stabilise operations. Whether start-up founders, used to burning money on buying growth at any cost, can achieve this balance remains to be seen.
 
NOTE: This article has been corrected to add BharatPe.
 
 
Comments
Kailash
7 months ago
Easily understandable article without complicate data and charts. Reading Suchetha Madam writings from Schooldays for ghe past 30 years. Always with truth with courage. My only subscription magazine is moneylife for Suchetha mam, Basu sir, Bala sir. No need to worry about negative comments. Attention seeking by attacking famous personalities. I am completely satisfied with my subscription.
gaurav.purkayastha
7 months ago
As usual, greed killed the Golden Goose.
We've seen it before.

History repeats itself, again and again and again.
cosmicsomya
7 months ago
Very balanced and well written piece
adityag
7 months ago
Byju's -- the startup everyone loves to hate and troll and give a dressing down. It's practically a meme now. Gotta feel for the employees though -- their future uncertain in a toxic workplace, mostly young graduates with dreams.

Article is nothing new -- it's par for the course as far as startup world is concerned. It's a risky world out there, with a lot of uncertainty. That's the price you pay for ambitions and being the next Google. So, I'm not really surprised and not sure why it is a big deal. It's simply capitalism doing its fine work.

If Byju's go kaput, it's good for the system, it's called creative destruction. Life goes on. Atleast it's not tax-payer money (although it's all intricately linked, one way or other as ecosystem becomes more linked than ever).
pallavoorsubramanian
7 months ago
From the beginning, Byju's disregarded all Governance practices and flouted every law including forcibly selling their class room lecture series to gullible parents. Not a penny was refunded to distraught parents. In fact they were threatened. It shows the collective failure of all concerned to rein them. At least now good sense seem to have prevailed.
vidyadeepsagar
7 months ago
Good to see Byjus getting shutdown, they never refunded us the fees for my younger sisters course which they sold us forcibly
Pradeep Poonia exposed this company long back, if investors and government would have listened to him back then, this company would have shut down last year itself
xismalldickxismallcock
7 months ago
Well Mexico has drug cartel and here we have education cartel called byju,Byju spent money on indian cricket 1100 crore sponsorship advertising deal also FIFA Lionel Messi and sharukh khan (ex - brand ambasador of iipm arindam chaudhary fraudster)
one of other intresting con man is Karan Bajaj (iim passout, so what he had skipped ethics syallabus at iim )probably )whitehatjr who started fake wolf gupta who as 12 year child old nasa Nobel prize ai Google employee all due to whitehat jr, Ryan venkat and became millionaire selling it for 300 million dollars and tried to choke pradeep poonia.
Education scam continues with arindam choudhary vs careers 360 the immense misuse of laws, bend the system to browbeat whistleblowers, now only thing left is to hire thugs and assasins to silence those who
Kamal Garg
Replied to xismalldickxismallcock comment 7 months ago
Some of the things you wrote, I was not able to underestand fully. But I fully support your views and this creates a doubt on the credibility of IIM brand, if their flambouyant and "successful" alumni turn out to be ponzies and scamsters.
arnprasad
7 months ago
A very high level write up...expected better from moneylife..if one basically googles Byjus and copy pastes the answers...you get an article like this..no research done and none of the things mentioned here is anything new. what is the purpose of this article in the first place?
sucheta
Replied to arnprasad comment 7 months ago
Greetings Mr. Prasad -- This comment and the one below seem to be in line with what happens anytime a person writes on Byjus -- one sees a troll attack. With all the bad news, there seems to be a different strategy this time , which is to question the quality and depth of research. First, this is NOT stock research - it is a commentary. Secondly, are you seriously saying that things are FAR worse at Byjus? Is there something you know that is not mentioned here? If so our email is [email protected] - let us hear from you something that can be added with evidence and backing. To answer your question about the purpose of this article. Well, the reaction from most readers is positive. That is because readers have a life and are not engaging themselves in Googling BYJU's for a complete understanding of its problems. They depend on articles and commentary that put facts together. I hope this answers your questions. Also, if you are already so well-read on all companies and issues, maybe Moneylife is not the place for you at all.
claromenezes8
Replied to sucheta comment 7 months ago
Mr. Prasad, Ms. Sucheta asked you a question, please respond at the earliest, what different views you have with adequate supporting!
krishanu.purple
Replied to sucheta comment 7 months ago
Sucheta, I had a few things to say at this point.

First of all, this is not an average write-up. It's concise, covers most of the facts that are part of this quagmire, and is pretty well researched.

It's abundantly clear that you wrote it primarily for the lay person who might have missed out on the intricacies. As you said yourself, this is an op/ed piece, and is not intended to cover all the angles exhaustively.

But there's something you must realise. You might think I am doling out free 'gyan', but that is not so.

I am a online journo too, although I cover other niches like geopolitics and global affairs.

From one person to another, never take these comments to heart. No matter how pathetic the trolling is, no matter the declining grade of pejoratives used to target you- do not engage directly.

You are a professional doing your job and doing it well. That's it.

You're not responsible to keep everyone happy with your coverage. Remain stolid and know that most people who have only negative (these usually lack research and/or any independent insight) things to fill this sections with are driven by an agenda.

Don't fall into that trap; they are meant to provoke and elicit a reaction.

That's what I had to add. I am certain you'll understand. And keep up the good work.

Regards,
Krishanu Chatterjee
gaurav.kukreja666
7 months ago
Superficial analysis. More coverage should be given to Aakash, it's most profitable subsidiary and how Byjus totally depends on Aakash to raise funds going forward.
Irony of "biggest ed-tech" depending on a brick and mortar 35 years old offline coaching centres is amusing
sucheta
Replied to gaurav.kukreja666 comment 7 months ago
Mr Kukreja -- you are of course entitled to your views. As for Aakash, which you seem to know a lot about -- why don't you write a research-based article for Moneylife? We will be happy to publish it. We do expect you to back it up with verifiable facts and data. Thank you. You can reach us at [email protected] once you write it. Thank you.
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