Key Takeaways From the Crisis Faced By The Most Expensive EdTech Unicorn

The journey to become the world's largest EdTech unicorn 

The company's founder, Baiju Ravindran, possessed a strong educational background as an engineer but did not pursue a career in that field for an extended period. His teaching aptitude came to light while assisting friends with exam preparations, leading him to generate income from this talent. In 2007, Baiju Ravindran established an educational company focused on university entrance exam coaching, gaining widespread recognition by organizing large-scale instructional events held in stadiums.

In 2011, the online platform Think&Learn made its debut, and in 2015, the Byju's mobile application was formally introduced. This initiative garnered millions of users in English-speaking nations. Initially, Byju's concentrated on providing Math, English, and Science lessons for elementary school students for self-study. However, the scope gradually expanded to encompass all levels of the school curriculum, incorporating courses designed to prepare students for various Indian and international exams.

Byju's swiftly attracted considerable attention and investment. In 2018, the company achieved unicorn status, becoming India's first startup valued at over 1 billion USD, although it had not yet gone public. By 2019, Baiju Ravindran had joined the billionaire ranks. Research suggests that Byju's rapid growth can be attributed to favorable market conditions particular to India. The app was launched during a period of surging internet access across the nation, with local providers offering highly competitive pricing. India's youthful and rapidly expanding population fostered a community of eager learners.

Nonetheless, it was the onset of the Covid-19 pandemic that ignited explosive growth for Byju's. In 2020, the platform's user base surged by 50%, propelling Byju's valuation to double, reaching 12 billion USD. In 2021, the company continued to attract substantial investments, earmarked for acquiring other educational startups and expanding its user base. The app's user count reached 100 million, with more than 6 million subscribers. By the close of that year, Byju's had become the world's most valuable startup, boasting a valuation of 21 billion USD, with an IPO planned for early 2022.

Simultaneous Mistakes Arise 

In 2022, Byju's encountered a series of challenges. Bloomberg contended that the project had expanded too rapidly in preceding years, with investors pouring billions of dollars into it, only to later recognize deficiencies in its management practices. For instance, the company operated without a Chief Financial Officer (CFO) for a prolonged period of one and a half years. Additionally, acquisitions of educational startups were carried out in an unplanned manner, incurring a total cost of up to 2 billion USD. Employee turnover soared to the extent that numerous training centers remained vacant. Concurrently, the demand for online classes dwindled.

Despite substantial investments, Byju's found itself lacking the necessary capital to continue acquiring startups and sustain its rapid expansion. Consequently, founder Baiju Ravindran opted to seek loans, resulting in Byju's accumulating a debt of approximately 1.2 billion USD. In 2022, investments in the project began to taper off. The company was significantly affected after two investment deals, announced in July 2022, failed to materialize due to "macroeconomic reasons." During this period, the sole notable investment was a 400 million USD contribution from Baiju Ravindran himself.

During the summer of 2022, the company faced challenges in providing financial reports for the previous fiscal year to the Indian government. When questioned about the reasons for this delay, Byju's cited difficulties in conducting audits, especially concerning the numerous acquired startups during that financial reporting year. It wasn't until September 2022 that Byju's post-audit report disclosed a net loss of over 570 million USD for the year 2021, India's most costly unicorn. Consequently, despite Baiju Ravindran's assertions that the company would achieve a net profit in the following year, trust was eroded, and Byju's officially entered a period of crisis.

The initial indications of debt being sold to new creditors in the United States began to surface. Subsequently, lawsuits ensued as some investors accused the company of concealing 500 million USD. Other creditors, who had not received payments on time, also initiated legal action.

The heightened scrutiny by Indian authorities intensified the pressure on Byju's. The company's robust sales activities in 2022 came under the scrutiny of the National Commission for the Protection of Child Rights after app users were compelled to pay interest on credit to settle their payments.

In response to this environment, towards the end of 2022, Byju's altered its sales strategy, discontinuing the practice of sellers reaching out to potential customers at their residences. Nonetheless, the Indian government continued to closely monitor the company, leading to delays in financial reporting. In April 2023, the company's Bangalore office was subjected to a government raid, with authorities publicly announcing suspicions of Byju's violating currency laws. Reports suggest that during this period, Baiju Ravindran, the company's top executive, was visibly emotional during calls with investors.

An Uncertain Future Awaits 

In June 2023, the company witnessed the departure of representatives from its three largest investors from the board of directors. Deloitte Audit declined to finalize Byju's financial report for the 2022 fiscal year. Concurrently, the Indian Corporate Affairs Ministry initiated an investigation into the company's activities due to persistent delays in reporting. Byju's implemented workforce reductions, with over 3,000 employees laid off in 2022, and plans to further reduce its workforce by approximately 1,000 employees in 2023. Despite remaining a unicorn, Byju's valuation plummeted by more than 4 times, plummeting from 22 billion USD to 5.1 billion USD. Baiju Ravindran no longer holds billionaire status. The company is mired in debt, with the previously agreed-upon restructuring deadline having passed.

Bloomberg reports that the company's founder, Baiju Ravindran, holds hope of overcoming this predicament through a new investment infusion totaling 1 billion USD by the end of 2023. If these deals are successfully executed, it may enable the company to repay its creditors. Many still hold faith in Byju's potential for success, citing its mobile app's 150 million users, consistent product demand, and regular updates. During a meeting with employees in June 2023, Baiju Ravindran encouraged them to disregard rumors, stating that "the best days for Byju's are yet to come." Nevertheless, even if the company manages to recover, the overall situation is anticipated to deter foreign investors from engaging with Indian startups. Moreover, recent research conducted by the education market analysis firm HolonIQ (USA) indicated a continuous global decline in investments within the EdTech sector. Consequently, analysts foresee that most EdTech companies will need to forgo active expansion of their business operations in the near future.