Why Late-stage Activism May Not Save Byju’s
Byju’s is set to go down as the most spectacular corporate flameout. Little more than a year ago, India boasted five decacorns, an elite group of only 47 start-ups around the world valued at US$10bn (billion). Of these, the most valuable Indian decacorn was Byju’s. Despite a loss of Rs4,588 crore for FY20-21, Byju’s was valued at US$22bn in early 2022. It even wanted to get listed in the US, by merging with a publicly-traded shell company in that country, at an eye-popping valuation of US$48bn. It was a huge bubble, propped up by Byju’s deep-pocketed private equity (PE) investors. On Friday, some of those investors voted at an extraordinary general meeting (EGM) to kick out Byju Raveendran, Byju’s founder and chief executive officer, and to reconstitute the board. Even if these investors gain control of Byju’s, it is beyond redemption.
 
Mr Raveendran set up Think & Learn in 2011, got his first funding in 2013 and launched The Learning App in 2015 which became a case study at Harvard Business School. In 2017, Byju’s appointed Shah Rukh Khan as its brand ambassador and, over the next seven years, amped up the business with 29 rounds of funding to raise over $5bn. Of this, it blew up more than $2.5bn in 2021 and 2022 on acquisitions alone.
 
In 2019, it became the jersey sponsor of the Indian cricket team. In 2022, it appointed Lionel Messi as its global brand ambassador and became the official sponsor of the FIFA World Cup in Qatar, in what would appear to be the peak of its fake glory. The remarkable thing is that all through this the investors missed or ignored too many red flags back from 2018.
 
Too Many Red Flags
 
Byju’s products weren’t attracting customers organically, but were pushed through aggressive sales tactics, which was called out by Dr Anirudh Malpani, a well-known Mumbai doctor and now an angel investor. Dr Malpani has written more than 50 articles on his blog https://www.indianangel.in/?s=Byju starting with a 9 September 2018 article titled, ‘Byju’s is a money-raising machine. The real question is – will it become a money-making machine?’. The last of Dr Malpani’s articles was titled ‘How Byju’s cheats parents’.
 
Dr Malpani diagnosed Byju’s problem thus: “They taught their sales-people to mis-sell by blaming and shaming parents, who are vulnerable. They exploited their ignorance by bad-mouthing schools and teachers, and warning them that their kids would be left behind in the competition if they did not buy the Byju’s apps. They locked them into multi-year subscriptions by offering discounts for payments made using EMIs through a third-party financer, and once parents had signed these contracts, they were stuck and could not cancel.”
 
To investor activists, who are now concerned about Byju’s ethics and governance, this should have been a huge red flag. Instead, they kept pumping money helping this toxic business grow bigger.
 
Dr Malpani was a prolific writer on LinkedIn on a wide range of topics covering the start-up ecosystem including critical posts of ed-tech major Byju’s work culture, business model and user experience. In July 2020, LinkedIn deleted Dr Malpani’s account because of his many posts on the ed-tech. Byju’s is one of the top advertisers on LinkedIn.
 
According to Dr Malpani, “They (Byju’s) complained to LinkedIn, claiming my posts were defamatory – even though they knew the posts were completely true, and in turn LinkedIn permanently deleted my account, without giving me a chance to be heard, or to appeal!”
 
All valuable tech start-ups have a common feature: they address a serious and widespread problem that consumers are facing, with a solution that works and, better still, that consumers love. Byju’s is not solving any problem and certainly does not have a solution that anyone loves. This was most obvious during COVID-19. If ever there was a period when Byju’s could have made bumper revenues and profits, it was when schools were closed and students and teachers had to adopt an ed-tech solution. But Byju’s reported record losses in FY20-21 and FY21-22.
 
In December 2022, the National Commission for Protection of Child Rights (NCPCR) alleged that Byju’s was stealing the phone numbers of students and shaming or threatening them to buy its courses. Byju’s reacted with a ‘strong denial’ but later promised to ensure positive consent while signing up students for its programmes, and to stop 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 aggressive sales pitches. Without such tactics, Byju’s would probably have a fraction of the revenues earned and losses would have ballooned even higher. The fact is that massive layoffs (25,000 employees laid off from the peak of over 58,000 in 2022), employee grievances, and customer complaints show that Byju’s simply does not have a worthwhile business model; a basic fact that seems to have escaped the smart PE funds who put Byju’s on steroids.
 
In April 2023, the enforcement directorate (ED) conducted searches at Byju's parent firm, Think and Learn Pvt Ltd and, Mr Raveendran’s house for suspected violations of the Foreign Exchange Management Act (FEMA). In November 2023, the ED issued a show-cause notice alleging violations of Rs9,362.35 crore.
 
In June 2023, as Byju’s continued to totter, Deloitte Haskins & Sells, which has audited it since 2016, and was supposed to continue doing so until 2025, stepped down with immediate effect stating that “the financial statements of the company are long delayed.”
 
Byju’s is all set to go the way of Housing.com and Zilingo. It is only a matter of time. Indeed, the coup attempted by investors will ensure that. It will be an enormous distraction for current management and, if and when a new management takes over, it will discover that there is no worthwhile business to run. Losses will spiral, the best of employees would leave and it will face a solvency issue, having run out of cash.
 
(This article first appeared in Business Standard newspaper)
 
 
Comments
iaminprabhu
2 months ago
Will our JUSTICE SYSTEM send such daylight THUGS to jail for such skewed business model and forcing consumers (Parents & Students) into shaming corners to run their business!?
Meenal Mamdani
2 months ago
It looks as if the PE investors pushed Byju to overextend itself.
Yes, Byju could have refused to accept their money and concentrated on growing slowly, refining the business model but the mind boggling amount of money is a temptation that few can resist.
OYO went the same way when SoftBank poured money into it.
These investors have a lot of money thanks to the very low interest being charged by the US Fed Reserve and they have to park their money somewhere to show their clients that they are doing something with the money, not just sitting on it.
I feel sorry for Raveendran but he was lured by the money to promise things he could not deliver on.
pankajsangal
Replied to Meenal Mamdani comment 2 months ago
Pls dont feel sorry for Mr. Raveendran. He was very well aware of all the wrongdoings in his company that have been reported since 2018. He has fled abroad along with his wife and brother. Irrespective of who looses how much money, he has taken enough money with him to last a lifetime. By the time ED, income tax , ministry of corpotae affairs, RBI, EPFO office and other agencies get together to take meaningful action against action against him and his co conspirators, it would be too late. Employees, government agencies, investors, customers, creditors etc would have to manage with the leftovers.
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