BYJU’S: More than 13 purchases totaling $3 billion. foreign market expansion. A total of $1.5 billion has been raised. the highly desired decacorn badge. And the honour of becoming the most valuable edtech company in the world. In 2021, all of this was completed in just over a year. For BYJU’S, those were the glory days.
Unpacking the Myriad Challenges Facing the Edtech Major
In 2023, the edtech major is having some problems. A funding shortage, a decline in valuation (investment firm BlackRock cut its valuation to $8.4 billion in May from $22 billion achieved in March 2022; Prosus valued it at $5.1 billion in June), governance problems, a drop in demand as schools resumed operations following the pandemic, and allegations of pushy sales tactics, among other things, have all negatively impacted it over the past year or so. Even if new problems arise every day, BYJU‘s seems to be running out of time and money. Only a daring and remarkable plan can now save the Bengaluru-based company. Byju Raveendran, its 43-year-old CEO and former maths tutor, is fully aware of this. A pioneer in the Indian edtech industry is BYJU’S. Therefore, any difficulties it encounters and how it handles them may offer the ecosystem as a whole priceless lessons. Self-correcting hyperinflated unicorns vying for a small customer base. Consequently, the sector’s consequences might not be as severe as anticipated.“The more significant repercussions, however, could be felt across the larger start-up ecosystem, given the heightened scrutiny from later-stage investors following the high-profile trials faced by companies like BYJU’S and PharmEasy. These investors may demand increased safeguards to protect themselves from business failures,” says Anirudh A. Damani, Managing Partner of Artha Venture Fund.
Legal Battles, Valuation Woes, and Governance Challenges
Prior to the effects, attention must be given to the difficulties BYJU’S, once the face of India’s edtech revolution, is currently facing. These have gotten worse when a group of lenders who provided it with a $1.2-billion Term Loan B or TLB during its peak years sued it and requested accelerated repayment. These are long-term secured loans that businesses use for large projects or acquisitions involving numerous lenders. Early in June, BYJU’s failed to make the quarterly interest payment. It has stated that until the court settles the case, it would not make any additional payments to the lenders, including any interest. In order to prevent the lead lender from enforcing the TLB’s provisions, it actually countersued its debtors. The situation at home was rapidly becoming worse; an investor (BlackRock) reduced its valuation, and the ongoing layoffs severely affected employee morale. Its problems peaked when three board members—G.V. Ravishankar of Peak XV Partners, Vivian Wu of the Chan Zuckerberg Initiative, and Russell Dreisenstock of Prosus—resigned, along with statutory auditor Deloitte Haskins & Sells. Deloitte ascribed the choice to the protracted holdup in delivering the FY22 audited financial results. “A statutory auditor acts as a watchdog for the shareholders, and not for the management or promoters. When the information was not forthcoming after repeated requests, it (Deloitte) feared that there could be some inconsistencies in financials and it didn’t want to take responsibility. That is why it has pre-emptively stepped down. If there are no issues around financial management, why wouldn’t BYJU’S provide these documents to its statutory auditor?” asks a senior executive at a Big Four firm. Additionally, there have been rumours that the Ministry of Corporate Affairs is reviewing the company’s financial records, however BYJU’S has disputed this.
Funding Talks, Strategic Changes, and Governance Reforms
But Raveendran seems prepared to take on the difficulties head-on. His first aim is to reach a peaceful resolution with the lenders and obtain much-needed money. At a town hall on June 29, he asserted that the business was in discussions with investors about a fresh financing round, and that if those talks fell through, he would consider selling non-core assets. Sources claim that Raveendran has been negotiating a new round with Middle Eastern investors for months and that it will grant preferential rights that current investors are not currently entitled to. However, it will aid in the company’s term debt repayment. Raveendran must first reassure his staff, though. He told them: “The best of BYJU’S is yet to come.” He stated that talks with the lender consortia were moving in the right path in a later email to the workers. “We are confident about achieving positive outcomes hopefully without further court intervention,” a BYJU’S spokesperson says. Even though it’s still unclear when the new funding round will be announced, the recent strategic change to an inside sales procedure and the employment layoffs are already having a positive impact. Additionally, the switch to shorter programmes lasting one to two years has been vital in assuring upfront payments that are more complete, leading to quicker and better cash flows. “With one- to two-year courses, the fee comes down to Rs 25,000-35,000 from the average fee of Rs 80,000 (for four- to five-year courses), and there is a higher probability that more parents would make full payment,” claims a senior official from the company’s sales team. Numerous layoffs have been attributed to these changes because they make some teams outdated. The ability of BYJU’S to turn around the company will determine its destiny. Although the current Aakash IPO schedule (mid-2024) is ambitious, the immediate priority is developing sound governance practises with crucial checks and balances. In order to provide advice to the CEO on board composition and governance, Raveendran has named former Infosys Director T.V. Mohandas Pai and former State Bank of India Chairman Rajnish Kumar to the newly established Board Advisory Committee of the business. Arjun Mohan, the previous CEO of upGrad, has also been hired by him to lead the organization’s worldwide business division, accelerating global operations. More significantly, according to Damani of Artha Venture Fund, the BYJU’S incident may “lead to a recalibration of the investment climate” in India’s start-up ecosystem, with investors becoming more focused on supporting businesses that demonstrate viable business strategies. “While this may temporarily stifle the funding frenzy, in the long run, it may encourage the growth of more resilient and financially sound start-ups.”
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