Byju Raveendran Crocodile Tears Can Not Wash His Wrong Doing In Byjus

BYJU, the one renowned name for being the pioneer in the Indian Edetech sector, is now famous for no good reason. From shareholders to stakeholders, Byju has gotten its name entangled in multiple controversies. The compromise in the financial domain can do the starting. Aside from the growth and valuation difficulties, additional risks are associated with its operations, such as delayed financial reports, corporate governance issues, debt repayments, foreign expansion, boardroom manoeuvrings, and more.

In late April, Indian authorities raided Byju’s Bengaluru offices, confiscating laptops and publicly tying the world’s most valuable education-technology business to alleged currency offences. Byju Raveendran, the firm’s patron founder and CEO, has been in turmoil for months. Apart from the raid by India’s anti-financial-crime agency, his once-promising teaching firm failed to file its financial statements on time. Several US-based investors accused Byju’s of concealing half a billion, bringing litigation. With a planned $1 billion equity fundraising from Middle Eastern investors on hold, according to those who attended the conversations, Raveendran broke down in tears defending his firm.

Prosus NV, one of the company’s early investors, announced last week that it had resigned from its board position due to poor management and disregard for directors’ recommendations.

Both Byju and Raveendran have denied any misconduct. However, their story, cobbled together from interviews with more than a dozen people engaged in the firm’s operations, provides insight into the obstacles India’s startups face. With little domestic venture capital, businesses like Byju’s have contacted the outside world for assistance. This changed last year when startup financing fell to a four-year low during the first half of 2023.

Without easy access to foreign funding, companies are now subjected to more scrutiny over corporate governance, jeopardising India’s bid to compete with the United States and China as the world’s IT hub. If the matter is not immediately resolved and precautions are not implemented at Byju’s, it would harm India’s reputation as an investment destination among foreign capital.

The birth of a great teacher.

Raveendran grew up in a village in Kerala’s coastal state, where his father taught physics and his mother maths. According to many who knew him then, he was an atypical student, skipping lessons to play football and preferring to educate himself at home.

Raveendran began instructing pupils at a college in Bengaluru after temporarily working as an engineer. Raveendran finally shifted classes inside a sports stadium as enrollment doubled every week. For thousands of children, lessons were broadcast onto massive screens.

Raveendran’s teaching approaches stood out in India, where skilled teachers are hard to come by, and methodology needs to be updated. He was an expert in preparing pupils for the difficult admission exams to top engineering and medical schools.

Raveendran recruited the help of his brightest pupils to teach with him and established 41 tutoring centres. He founded Think and Learn Pvt Ltd., the parent firm of Byju’s, in 2011. He co-founded the company with Divya Gokulnath, a former student and biotech engineer he subsequently married. Byju Raveendran, the company’s founder, headed it personally, and many of his pupils were involved. They were all eager to start a successful business.

Raveendran digitised his firm in 2015, creating self-learning software for elementary school pupils that mainly focused on maths, science, and English.

During the pre-pandemic era, Byju’s entered the K12 market, developed a mobile app and delivered hardware-based iPad games for children, and began activity-based career counselling and math-learning programmes through acquisitions of OSMO, Vidyartha, and Math Adventures. Byju became a unicorn in 2018 after raising over a billion dollars in a short amount of time.

The rise of BYJU.

Raveendran’s meteoric climb from private instructor to CEO of a $22 billion corporation enthralled global investors such as Sequoia Capital, Blackstone Inc., and Mark Zuckerberg’s foundation. During the pandemic, Raveendran controlled the majority of the Indian ed-tech business.

Covid-19 prompted a broad strategy transformation in many firms, as the digital format became a critical pillar of consumer value generation, distribution, and communication. Major in education technology, Byju was one of the critical benefactors of this paradigm change, as digital-only, or digital-first, businesses sprang out and expanded even more quickly. The growth approach was implemented when central banks provided near-zero cost liquidity on demand, making it simpler for entrepreneurs, private equity, and venture firms to experiment on a large scale with little Money.

Financial markets applauded this approach, which focused on growth, raising values. Extreme growth optimism fueled by the digital revolution, combined with a low cost of equity, has converted unicorns like Byju’s into decacorns. Investors also brushed aside concerns regarding refinancing.

• Byju’s quick capital-fueled growth occurred at a fantastic rate.
• Byju raised over USD3 billion to finance acquisitions and operational losses in 2020-21.
• It was funding its operations and its clients directly and through partners, who were granted guarantees to protect them from credit losses.

Massive acquisitions and fundraising rounds.

During the pandemic years, Byju’s purchased a dozen firms, ranging from White Hat Jr to Gradeup, to sharpen its emphasis on the K12 sector and expand into the worldwide market, offering a diverse variety of education and test-preparation services.

It also had an alliance with Disney. Byju seems to be investing in becoming a one-stop shop for all things educational. Investors flocked to Raveendran as tech spending rose.

Ranjan Pai, who oversees one of the country’s major healthcare and education conglomerates, agreed to sponsor Byju’s immediately. Raveendran took advantage of an increase in internet usage in India. Companies such as Reliance Jio Infocomm Ltd. provided data pricing that was among the lowest in the world.

According to Tracxn statistics, Sequoia Capital was an early supporter of edtech, investing 4.8 billion rupees ($58 million) in 2015. Soon after, Lightspeed Venture Partners and the Chan Zuckerberg Initiative, the Facebook founder’s charitable organisation, invested $50 million.

Raveendran purchased over a dozen educational firms in India and overseas as funds poured through Byju’s accounts. When the pandemic drove students online, the buyouts appeared inevitable. Raveendran intended to go public through a SPAC transaction. Some investors proposed values of up to $48 billion.

Raveendran also used debt markets to fund his buying binge. Though Byju’s wanted to borrow just $500 million in 2021, overseas investors such as Blackstone Inc., Fidelity, and GIC put up enough capital to increase the firm’s term loan B target amount to $1.2 billion.

Marketing, sales, and distribution investments.

Between 2017 and 2021, Byju’s doubled its sales and marketing budget annually, adding almost INR4,500 crore. By 2019, it has signed a multi-million dollar contract to sponsor the Indian cricket team from September 2019 to March 2023. Its celebrity-based commercials were visible everywhere, despite being flagged many times by the Advertising Standards Council of India (ASCI) for deceptive promotions.

The onset of pain.

However, Byju’s economic model was under more strain in 2022 when schools reopened following the pandemic. Concerns over Byju’s finances stung the firm’s reputation when classes resumed. Investors questioned why Raveendran waited years to hire a chief financial officer while acquiring more than a dozen firms worldwide at breakneck speed. Hundreds of staff have departed or been sacked. Members of the board have resigned. Its investors are beginning to examine the likelihood of success in a world that is not necessarily converting itself to become entirely digital, as predicted during the pandemic.

Mindshare is terrific, but…

During the pandemic years, Byju’s managed to acquire 100 million subscribers, but only about 8% of them paid for its services, with an average annual revenue of around INR5,000 per subscriber – revenue that came from tablets loaded with education content rather than mobile-first learning content.

There are 150 million homes in India’s schooling market. Since Byju has over 100 million registered members, it has already reached many prospective buyers. Byju failed to focus on its services’ value and could not generate more income per registered subscriber.

According to the estimate (based on the household consumption expenditure survey), a typical rural household spends roughly INR30,000 on schooling yearly, whereas an urban household spends INR90,000. As a result, Byju has failed to focus on the value it provides to learners to maximise the percentage of education spending it can obtain from them.

Byju’s had the choice to select greater value-seeking categories, in which families had the means and desire to pay for the learning services supplied by the ed-tech platform, even at the early development stage.

However, with such a quick investment, it was difficult for investors and entrepreneurs to calm down and think about their decisions. During 2020 and 2021, Byju’s raised roughly USD4 billion in stock and loans to fund acquisitions and its loss-making operations. 

The flow of low-cost Money is decreasing.

As schools and colleges began to open in 2022, the need for digital learning inevitably began to decline. Investors’ interest in ed-tech skyrocketed during the epidemic. When central banks started raising interest rates and restricting liquidity, access to cheap Money dwindled, making investors significantly more cautious.

Cracks in the organizational structure.

However, by the Middle of 2022, difficulties began to pile up. The SPAC boom faded, as did the demand for online tutoring. Employees called Raveendran’s business judgement into question: Even when Covid limits were lifted, he wanted to raise additional equity rather than save funds and aim for profitability.

That plan ran into trouble last July. Sumeru Ventures and Oxshott, two important investors, failed to deposit around $250 million — half of the anticipated $800 million round — due to “macroeconomic reasons. According to those acquainted with the transaction, Raveendran did not verify if the investors had sufficient funds before publicising the transaction. The funds have never arrived.

According to Byju’s workers, Raveendran avoided contacting investment bankers on deals, instead relying on Anita Kishore, his chief strategy officer, to execute most transactions.

Meanwhile, Indian regulators questioned Byju why the company couldn’t finish its books for the fiscal year ending March 2021. According to persons familiar with the situation, ED, which probes money laundering and currency breaches, summoned firm leaders.

Byju’s failed to file its annual report for fiscal year 21 on time, and the report for fiscal year 22 has yet to be filed. It has cited complications emerging from acquisitions as the basis for the filing delays. Deloitte has resigned as its auditor, and three directors have requested that it be removed for various reasons. After the raid in late April, no charges were filed against Byju. However, India’s corporation regulator, the Ministry of Corporate Affairs, will shortly determine whether to launch a formal investigation.

Byju’s eventually issued audited financial results eighteen months after the fiscal year ended. They reported losses of 45.7 billion rupees, a 13-fold increase over the previous year. Byju’s attributed the poor performance to accounting practices that delayed income for future years. Others noted a significant rise in marketing spending. Investors were concerned about the firm’s finances. Some creditors, including Blackstone, sold their interests, allowing distressed investors in the United States to purchase the $1.2 billion loan at interest rates as low as 64 cents on the dollar.

Soon after purchasing the debt, creditors demanded expedited payments since the company had violated agreements, including a September deadline for submitting its results for the fiscal year ending March 31, 2022.

As it attempts to integrate people, portfolios, and processes, an acquisition-led approach raises the cost of complexity. Byju’s lacked a focused effort to establish the team and implement the necessary strategies, instead using complexity as an excuse to postpone regulatory submission. As a result, the business has lost some of its investors, consumer, and staff trust.

The start of the legal war.

Following eight months of discussions, Byju’s lenders in the United States accused the company of concealing $500 million in a Delaware lawsuit. They said that Byju is technically in default on the $1.2 billion loan since the company has failed to give regular financial reports.

Byju’s defaulted on a $40 million interest payment in June and launched its lawsuit in New York, accusing the lenders of “bad-faith negotiating.” According to the company, the loan contract forbids lenders from selling their holdings to confident investors, including those specialising in distressed debt.

Shareholder rebellion.

The stakes keep rising. Representatives from three major investors, Peak XV, Prosus, and the Chan Zuckerberg Initiative, recently resigned from Byju’s board of directors. Deloitte Haskins & Sells also resigned as Byju’s auditor, citing the company’s shaky financial records.

Byju has grown significantly since its initial investment in 2018, but its reporting and governance systems have not evolved adequately for a company of that size, according to a July 25 statement from Prosus, explaining why its director stepped away from Byju’s board. It has now lost one of the first backers as a result.

Lack of Aggressive restructuring.

Except for the statement that it will sell non-core assets to obtain Money, the corporation has not disclosed any intentions for corporate reorganisation. According to Tracxn statistics, the business’s staff strength decreased from roughly 58,999 individuals in June 2022 to 15,265 workers in March 2023, suggesting that the corporation has decided to be leaner.

According to past analyses, the corporation had around USD 900 million in cash, which should support its much smaller operation for a while. However, Byju has been cutting back on its marketing spending since it wasn’t meeting its statutory obligations on time.

Therefore, the following questions are straightforward at this point:

• Is it conceivable for Byju’s to reorganise its company and purchase more time to recover?
• What are its current strategic options?
• What is the likelihood that it will succeed?

The “probability of failure” will be reduced immediately, and the “probability of success” will rise over three to five years with a smaller and slimmer Byju.

A $1 billion equity investment from Middle Eastern backers is what Raveendran is relying on, and it may happen as soon as this month. He is now turning to some of his early contributors in India to get by during the economic crunch. According to those watching the discussions, if the Money comes through, Byju’s might settle its debts and buy out the rebellious US-based investors.

Lenders also concurred earlier last week to work on modifying the $1.2 billion debt by August 3. Most investors have reduced the company’s estimated value to under $10 billion. Although Byju has had a rough few months, many people are still optimistic about the company, citing its substantial assets, which include 150 million consumers.

Given that Byju’s reputation among customers, staff, and investors has suffered significantly, experts anticipate it will struggle to keep all its paying subscribers and staff. As a result, it requires its investors to continue being patient and contributing risk money for many more years.

Although the firm has already begun to reduce expenses to reduce losses, it would still need to reallocate its resources to other markets and services as its primary product was high-quality test preparation that gave students returns in a certain amount of time. 

Additionally, Byju may need to abandon its money-sucking endeavours, such as “AI-based personalised cross-channel marketing solutions for businesses,” or restructure them under a new name. The breadth of services offered to the K–12 market could also be reduced, especially in those using gamified coding, augmented reality for product visualisation, 3D virtual lab platforms, and similar technologies. If the company is still a money-sucking venture, it could abandon the WhiteHat platform.

To regain the trust of learners and families and increase its portion of the Money paid by paying subscribers, experts advise Byju to concentrate on areas that would provide value for learners in the short term.

The need to enhance governance.

According to reports, financial data for FY22 is anticipated to be made public in September. The lessons are evident now, even though some data will become more understandable. Corporate governance is the most crucial foundation for fostering trust among investors, customers, and workers. It is not a decision. Existing clients shouldn’t be taken for granted because they would want more for less Money. Most significantly, the remaining workers will not have an easy time, and Byju has to regain their trust and invest in them.

While corporate governance is a common subject in today’s high-profile companies, Byju has many problems that need its leadership to develop solutions on many different levels. Both the existing and incoming leadership have a difficult path ahead of them. To regain the trust of learners and staff, Byju must reevaluate its value proposition and strategy. Investors must also be patient.

Conclusion.

Easy Money and a highly ambitious founder have resulted in unnecessary acquisitions, bad judgements, and appalling corporate governance. They concentrated on celebrities rather than the client—easy Money Spent on Expensive Mistakes. The only way to survive is to invest in the core business and provide value to consumers. Therefore, BYJU has to stop putting good Money behind evil. Greed obscures common sense. Commercialising education will lead to its demise. That is what took place in this poor, lost startup.

Raveendran’s supporters attribute inaccuracies to the passion and ignorance of an unexplored founder who expanded too hastily. His detractors charged that he operated carelessly by hiding financial information and skipping a thorough examination of the accounts. Many in the startup community in India view Byju’s as the most prominent illustration of what may happen when a company expands during a period of rapid economic growth without making plans for a crash. Byju was too greedy to bite more than it could chew. A tale of rags to riches, Byju should have been mindful of the rollercoaster ride and its long-term consequences.