Byju’s: How India’s most valuable new business got started

“Byju’s is a company that has grown too fast, too soon,” says Shriram Subramanian, who runs an independent corporate governance study and advisory firm.

Byju’s was started in 2011 and released its learning app in 2015. By 2018, the edtech company had 15 million users and was worth $1 billion. This was a big deal.

During the Covid-19 pandemic, when schools were locked down, many students went online to take lessons. But in 2021, it lost $327 million, which was 17 times as much as the year before.

Since then, the edtech giant has seen a very strange thing happen. Byju’s was worth $22bn (£17.28bn) last year, but Prosus NV, the company’s largest investor and partner, cut that to $5.1bn this year.

When asked by the BBC, the company did not answer.

“There would be a drop when kids went back to school after the pandemic,” Mr. Subramanian said. “But Byju’s kept growing, and investors kept putting money into it. They didn’t see the warning signs that a slump was coming.

An angel investor named Aniruddha Malpani is a vocal critic of Byju’s business plan. He says the company’s profits were “paper fortunes.”

He said, “There is a big difference between value and valuation.”

Byju’s grew quickly during the pandemic, so in 2021, it spent $2 billion buying up edtech start-ups and companies like WhiteHat Jr, Aakash, Toppr, Epic, and Great Learning.

Soon, it was worth more than the digital payments app Paytm, making it India’s most valuable new company.

Byju’s spent hundreds of millions of dollars on marketing and got Bollywood star Shah Rukh Khan and soccer star Lionel Messi to represent the business. It signed on as the official backer of the Indian cricket team and the 2022 FIFA World Cup.

But in the past few months, parents have been complaining that the company hasn’t kept its promises. They say they were forced to buy courses they couldn’t afford and then didn’t get the services they were promised. Some people also said that the company took advantage of customers by using predatory tactics.

Former workers said that there was a lot of pressure to make sales and that the goals were not realistic. In order to save money, the company has fired thousands of workers in the past year.

Byju’s has said that the claims made by parents and its former employees are not true. In addition, the government has been looking into it.

In April, Indian officials went to the firm’s office in Bengaluru because they thought they had broken foreign exchange rules. The company denied that it had done anything wrong and told its employees that it had followed all the rules.

In May, the company’s lenders sued it in a US court, saying that it had stopped making payments and broken the terms of the loan deal by, among other things, taking months to release financial statements. The lenders also said that the company used its US-based subsidiary Alpha to move money. Byju’s disputed this claim.

In June, Byju’s sued the lenders for allegedly harassing them because they had not paid an interest payment of nearly $40 million.

It also started another round of cuts, which led to the firing of almost a thousand people. The firm’s own inspectors were going to cause it more trouble.

Deloitte Haskins and Sells Llp quit auditing the company because Byju took too long to send in its financial records. The accountants said that it made it harder for them to look at the books of the company.

This was soon followed by news that three of its board members had quit, leaving only CEO Byju Raveendran, his wife Divya Gokulnath, and his brother Riju Raveendran on the board.

It is said that the company is now in talks to restructure its debt.

Reports also said that at a shareholders’ meeting this week, there were calls for the CEO to step down, but two investors at the company rejected these claims.

“Byju hasn’t lived up to the expectations of a company its size,” said K Ganesh, a serial entrepreneur and angel investor who started BigBasket, one of India’s biggest online grocery stores.

He says that the delay in filing financial records was unacceptable and wrong.

“Most industries that grew quickly because of the pandemic are now facing headwinds because the return to normal has been stronger than they expected,” Mr. Ganesh said. “This holds true for all companies in the edtech sector.”

Experts say that the potential of the sector was blown out of proportion during the pandemic.

“Technology by itself will never work,” says Dr. Malpani. “You need it along with a safe place where children can learn from each other while being watched by an adult.”

“Byju’s was mostly selling hardware, like its tablets, with study materials that could be found online for free,” he says.

During the pandemic, these start-ups were valued at “stratospheric, unrealistic levels.” Now, Mr. Ganesh said, they are being valued at “realistic levels.”

He also said that the “detrimental” board structure of companies backed by venture capitalists is one of the reasons Byju’s is at a crossroads right now.

“With only managers, owners, and investors on board, who all have to look out for their own interests, there is no one to look out for the company’s interests. “This is different from a publically traded company, where rules require a set of independent directors and an audit committee led by an independent director,” Mr. Ganesh explained.

Several experts, including Mr. Ganesh, have said that start-ups that hit a certain level should be told to work like public listed firms.

At the shareholders’ meeting, the company is said to have agreed to set up an advisory group made up of independent directors to help the CEO make decisions about the board and how the company is run.

Mr. Ganesh and Mr. Shriram said that the company could still turn things around if it admitted its mistakes and promised to take action right away on all fronts.

Dr. Malpani thinks Byju’s hasn’t shown that they want to do this, though.

Mr. Shriram says, “They need to save as much cash as possible, which will give them a long runway, and cut costs aggressively, not just by laying off people.” “You could also sell some businesses to get money.”

Byju’s has planned to finish its 2022 audit by the end of September and its 2023 audit by the end of December.

Analysts think that Byju’s current situation will only be good for India’s start-up ecosystem in the short run.

“Due diligence, founders’ rights, the need for an internal auditor, independent board members, and the terms and conditions of corporate governance, which were previously glossed over, will become stricter,” Mr. Ganesh said.

“India has good corporate governance laws,” said Mr. Shriram. “The investors and other people who have a stake in Byju’s should ask for more.”

Analysts say that buyers are used to going through bull and bear runs and that they don’t remember these dips for long.

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