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By Andy Mukherjee
In 2015, a young engineer from Kerala in south India came up with an ambitious plan to take math and science online and make it fun for the country’s stressed teenagers. But instead of remaining focused on education and technology, Byju Raveendran appended a gigantic sales machine to his edutech — with Bollywood superstar Shah Rukh Khan and soccer legend Lionel Messi as his brand ambassadors, and an army of reps hustling to sell courses to anyone downloading Byju’s — The Learning App.
And then, with the help of cheap, over-eager venture capital, he turned his eponymous organisation into an acquisitions juggernaut, spending nearly $3 billion globally during the pandemic-era craze for remote learning.
The result has been nothing short of disastrous. Just 15 months ago, the startup was worth $22 billion. Now one of its main investors has cut Byju’s valuation to under $3 billion. Prosus NV — as well as two other early backers, Peak XV and the Chan Zuckerberg Initiative — have quit the edutech’s board. Creditors have taken control of Byju’s Alpha, a US financing vehicle, over an unpaid $1.2 billion term loan.
The group is facing an acute liquidity crunch. Amid mass layoffs and deep losses, the former billionaire founder has sold his homes to pay salaries. Still, Raveendran is not entirely out of options. Byju’s could raise funds by selling Epic!, its US-based kids’ digital reading platform. At home, its physical test-prep business has seen interest from a wealthy Indian investor. In a sale or initial public offering of the unit, the crown jewel of the shrinking empire could fetch more than the nearly $1 billion Byju’s had paid for it in 2021.
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All bets for a revival would be off if Byju’s gets dragged into bankruptcy, though the likelihood of that is small for now. The Board of Control for Cricket in India has initiated an insolvency petition, alleging that the company defaulted on its sponsorship payments. However, the amount involved isn’t large, and the board may be persuaded to accept a payment plan. Existing investors could help ease the funding crunch, but Raveendran may have to accept a much lower valuation.
How did so much go so wrong so quickly? The sales machine that propelled Byju’s rapid ascent to the world’s most valuable edutech also played a large role in its downfall, according to The Learning Trap, a new book by Morning Context journalist Pradip Saha.
The author spoke to a number of current and former employees to paint a picture of a highly toxic work culture. Salespeople said they had to put up with verbal abuse and show up even on sick days so their bosses could send them on medical leave — after verifying that they weren’t malingering. Working 12 to 14 hours, six days a week, frontline staff were made to feel guilty for wanting to go home at 10 p.m. The pressure to meet targets was so high that some reps asked their families and friends to buy products and show that a sale closed only to cancel it later and get a refund. The book alleges that in several instances where customers had stopped paying, Byju’s was crediting the monthly instalments to lenders. The payment plans are the only way low-income families could afford to shell out about $600 plus taxes in the first place for a two- or three-year program, though now financiers have turned wary of underwriting them.
Byju’s says that many of the instances highlighted in the book aren’t systemic deficiencies, but localized lapses that occurred in the past — during a period of very rapid growth. The processes have been tightened since. Repeating the allegations perpetuates a cycle of “incomplete, sensational and misleading commentary,” and shows “a disregard for entrepreneurial challenges in scaling a business like Byju’s,” the company said in a statement.
An educational enterprise should have paid more attention to culture. When its valuation was soaring, investors ignored Byju’s overly aggressive sales tactics. But when the end of the pandemic slowed growth, they couldn’t dismiss its failures of corporate governance. Deloitte Haskins & Sells, the previous auditor, abruptly left in June, citing long delays on the company’s part. For the financial year that ended 21 months ago, the group is yet to file its audited accounts with regulatory authorities.
Then there are allegations of lax financial control. After seizing the US unit that had defaulted on $1.2 billion of debt, lenders alleged in court documents that $533 million of it had been hidden from them by parking it with an obscure hedge fund that once used an IHOP pancake restaurant in Miami as its principal place of business. Byju’s said in US court proceedings that it was trying to protect the money from predatory lenders.
The probe Byju’s faced in India for alleged violation of the country’s foreign-exchange controls is over, though the resolution is not yet known. The Bengaluru-based firm has said that it has been in complete adherence to the regulations, and that fines for delayed reporting, if any, will be limited. Still, with the group general counsel announcing his departure this month, it’s too early for investors to turn sanguine about legal troubles. Nor can they be overly optimistic about the startup’s recent attempts to jump on to the next big bandwagon in education: generative artificial intelligence for “hyper-personalized learning.” New growth initiatives can only yield results once survival is ensured.
Raveendran appears to have squandered a huge opportunity. When he launched his app in 2015, internet access over smartphones was on the cusp of explosive growth, fueled by cheap data. Byju’s could have filled a gap between India’s uneven school curriculums and the coaching mills to which the country’s anxious teenagers flock for success in grueling pre-university, MBA and civil-services tests.
Himself a gifted tutor, all Raveendran needed was a little bit of philanthropic capital and a tight group of dedicated educators and technologists. The free education program it runs in some of India’s poorest districts in partnership with a government agency may help with the scars of school closures during the pandemic. To make a more durable difference, Byju’s could have come up with affordably priced courses that didn’t need a sales machine — or clever financial engineering — to push them nationwide.
Would Byju’s have had a less glamorous but more stable run as a nonprofit like Khan Academy? Raveendran was in too much of a hurry to find out. The founder and his VC backers chose blistering growth over social relevance. The learning app became a trap.
Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper
