Explained: What Led To The Fall Of India's Startup Poster Child Byju's
Byju's, run by billionaire CEO Byju Raveendran, was the poster child of India's startup ecosystem. But in the last year, the company's valuation has seen a sharp decline with several of the company's investors now calling for leadership change.
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.
How Byju's Started
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.
Meteoric Rise Of Byju's
Byju's soon expanded its reach to undergraduate students, eventually forming Think and Learn Pvt Ltd. in 2011. The company then ventured into the school curriculum, breaking down chapters into interactive videos and using real-life examples to make students understand fundamental concepts.
In 2015, the company launched Byju's learning app, which catered to students from kindergarten to class 12. By 2019, Byju's had become India's first ed-tech unicorn, a startup that is valued at over $1 billion.
Byju's became the darling of India's startup ecosystem, captivating the nation with its innovative approach to education. The use of interactive videos and technology, coupled with celebrity endorsements from the likes of Shah Rukh Khan and Virat Kohli, propelled Byju's valuation to an unprecedented $22 billion, making it the world's most expensive ed-tech startup.
The Fall
The meteoric rise of Byju's eventually gave way to a tumultuous fall. After a rapid expansion during the Covid pandemic, Byju's has been struggling with cash-flow problems and is embroiled in a dispute with creditors over a $1.2 billion loan.
The company's rapid expansion also led to allegations of a toxic work culture and immense pressure on employees to acquire more customers.
In June 2023, tech investor Prosus cut Byju's valuation by 75%, leading to layoffs and allegations of financial mismanagement. Byju's parent company, Think & Learn Pvt Ltd., faced scrutiny for not paying PF money to employees and was also suspended by Google and Facebook for non-payment of ad dues.
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 Rs 252 crore to 4,564 crore in just one year between 2019-20 and 2020-21.
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 current valuation of $1 billion marks a drastic decline from its all-time high, signaling a troubling period for the once-thriving ed-tech giant.
What Next For Byju's?
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.
