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From Dreaming of a $100 Billion Startup to Financial Default | India’s First Unicorn Byju’s

From Dreaming of a $100 Billion Startup to Financial Default | India’s First Unicorn Byju’s

1703664785212 – Once upon a time, Byju’s soared high, captivating investors and securing a 22 billion dollar valuation. The company basked in the limelight, boasting brand ambassadors like Shah Rukh Khan and Messi and sponsoring major sports events like the FIFA World Cup and the Indian Cricket Team. 

Positioned as a pride of the Indian Startup Ecosystem, Byju’s aimed to make education accessible to millions through technology. Two years ago, it was hailed as a company with a noble aim. 

Fast forward to today, and the narrative has taken a dramatic turn. Byju’s is on the brink of closure, with disgruntled employees, financial turmoil, and a plummeting valuation of 3 billion dollars. 

The founder, Byju Ravindran, even had to pledge his house and take a 12 million dollar loan to meet payroll. 

The company is now grappling with unpaid salaries, PFs, and TDSs (tax deducted at source). 

Employees are denied FNFs, including bonuses and incentives. Utility bills are piling up, and allegations of Foreign Exchange Management Act violations loom large. 

How did this stunning rise transform into a rapid collapse?

Byju’s, like a firecracker rocket, shot up in the sky only to explode. This story is not just about a tech company; it’s a cautionary tale for the entire startup ecosystem. 

The lesson is clear: investing heavily in a flawed business model out of greed leads to blind growth that eventually shatters. 

It’s a reminder for all of us to scrutinize investments, question motives, and not succumb to the allure of grand promises. 

This case serves as a stark reminder that the heedless pursuit of growth without a solid foundation can bring even giants to their knees. 

Hi, I’m Nabeel Shaikh, a seasoned chartered accountant, entrepreneur, and management consultant with 17 years of diversified experience. As we unravel this tale, it prompts us to be vigilant, question everything, and learn from the cautionary tales within the startup landscape.

In the words of Hansal Mehta, Byju’s downfall is so significant that it might just merit its own season in the annals of scams. 

Byju Ravindran: CAT Topper to Founder

Fifteen years ago, Byju Ravindran laid the foundation for Byju’s parent company, Think and Learn. Born in 1980 in Azhikode, North Kerala, Byju grew up in an environment where both his parents were educators, fostering a studious atmosphere. 

Byju’s academic journey took him from a government school in Azhikode to S.N. College, Kannur, where his prowess in both mathematics and sports became evident to classmates and teachers. 

Post-school, he pursued engineering at Government Engineering College, Kannur, graduating in 2000. Following a brief stint as a service engineer at a shipping firm, he returned home in 2003. 

His life took a turn during this break when friends sought his help with the CAT test. Byju, who had never been passionate about pursuing an MBA, reluctantly agreed. 

To everyone’s surprise, he not only aced the test with a perfect score but also rejected offers from IIMs (The Indian Institutes of Management), choosing to return to his job as a service engineer in a UK-based shipping company, Pan Ocean. 

In 2005, Byju took the CAT exam once again, achieving another flawless score. Word spread, and soon, students flocked to him for coaching. 

Byju formalized his classes in 2006, starting with CAT coaching. The demand surged, leading him to teach in auditoriums, addressing up to 1200 students simultaneously. 

Byju’s adopted a freemium model, offering the first class for free and charging Rs. 750 per session thereafter. 

Additionally, he conducted lengthy weekend workshops, teaching students strategies to predict questions and find shortcuts. 

As news of the CAT topper-turned-teacher spread, Byju became a household name. 

The conversion rate from free sessions to paid workshops was impressive, with nine out of ten students enrolling after the initial free class. 

The journey from a reluctant CAT test taker to a sought-after educator laid the groundwork for what would become the rise of Byju’s. 

Byju’s Evolution: From CAT Coaching to Digital Powerhouse

With a highly successful business model and a growing trust from the public, Byju’s expanded its focus to undergraduate students between 2007 and 2009. 

Byju Ravindran’s tireless efforts saw his classes spread to nine cities, solidifying his popularity. 

In 2009, the company introduced video lectures and ventured into UPSC courses. 

By 2011, Think and Learn transformed into a corporation, and Byju strategically brought former students, including his future wife Divya Gokulnath, onto the company board. 

Expanding its reach, Byju’s delved into school courses, experimenting with textbook content. By breaking down chapters into digestible video segments, Byju’s unique teaching style emerged. 

In Bengaluru, an offline coaching center for high school students was established to test this new video product, a groundbreaking move considering video education was not as mainstream in 2011–2012 as it is today. 

Byju’s organized mega workshops, drawing students to their tuition centers, reminiscent of their CAT class strategy. 

Batch sizes grew to a staggering 25,000, marking just the beginning of their exponential growth. 

Recognizing the diverse learning preferences of students, Byju’s took a revolutionary step in 2012. They hired experts, combining text with video and animation, and explained concepts through everyday examples. 

This departure from the traditional marks-centric approach aimed to shift the focus toward understanding fundamental concepts. 

In a pivotal meeting in 2012, Byju Ravindran connected with Ranjan Pai of the Manipal Group. Observing a class in Byju’s hometown, Pai was intrigued. 

The lengthy conversation culminated in Pai investing 50 crores in Byju’s, with one condition – Byju’s had to go digital.

This investment marked a turning point, propelling Byju’s further into the realm of digital education. 

Byju’s Rise: A Digital Education Giant Amidst the Pandemic

Three years after the pivotal meeting in 2012, Byju’s took a monumental step in 2015 by launching the Learning App.

This app featured built-in content spanning various classes, from board exam preparation to kindergarten, showcasing the company’s substantial investment in school education.

In June 2015, Byju’s secured a $25 million investment from Sequoia Capital India, later rebranded as Peak XV Ventures.

The following year, the Chan-Zuckerberg initiative injected $50 million into the company, solidifying Byju’s position in the spotlight.

Shah Rukh Khan became the brand ambassador, and in 2017, Harvard Business School recognized Byju’s impact on the learning ecosystem through a dedicated case study. 

The story of Byju’s went beyond financial success; it resonated with the promise of making a substantial impact. This commitment to impact garnered trust and further investment.

By the end of 2018, Byju’s achieved the milestone of becoming India’s first ed-tech unicorn, with a valuation exceeding 1 billion dollars.

The company even sponsored the Indian Cricket team, solidifying its widespread recognition. 

COVID-19 Pandemic 

Then, the COVID-19 pandemic struck, presenting a significant opportunity for ed-tech companies. 

With schools closed and education disrupted, ed-tech companies leaped to fill the learning gap. They offered free access to their platforms, resulting in a 150% increase in pageviews between March and October 2020. 

The Indian government’s introduction of a national education policy further emphasized online education. This confluence of factors fueled a rapid expansion of the ed-tech sector, with the spark evolving into a forest fire. 

The sudden explosion caught everyone off guard, with investors pouring funds into the exponential growth. From April 2020 to May 2022, the ed-tech sector received a staggering $6.65 billion in funding from venture capitalists, with Byju’s alone securing $3.3 billion—underscoring the magnitude of the industry’s faith in Byju’s potential. 

Byju’s Challenges: Growth Pitfalls and Predatory Practices

With its valuation skyrocketing overnight to an astounding $22 billion, Byju’s embarked on a buying spree, acquiring numerous companies with a well-padded wallet. 

The list of acquisitions included White Hat Junior, Akash (an offline coaching institute), Toppr (a K-12 platform), and Great Learning (a higher education platform).

However, in the pursuit of this rapid and expansive growth, Byju’s hit a stumbling block, becoming a classic example of “Too Big Too Soon.” 

The pressure mounted as expectations soared for the company to demonstrate exponential growth, putting considerable strain on employees to bring in more deals and revenue. 

By the end of 2022, the company was on the brink of collapse due to its failure to meet these escalating expectations. 

Underlying systematic issues within the company compounded by the pandemic exacerbated the situation.

Employees spoke out about a toxic work culture marked by impossible targets, unsustainable work hours, and abusive management. 

Byju’s predatory sales tactics came under scrutiny, with reports of salespeople pressuring parents to take out loans and sign up for courses, promising discounts that were never delivered. 

Parents found themselves ensnared in a debt trap, unable to pay back loans taken out under duress. 

By April 2023, the mounting pressure from lenders had reached a tipping point, with further loans denied to Byju’s.

The company, which had taken advantage of people in the name of education, now faced the consequences of its actions. As lenders tightened their grip, Byju’s own financial obligations went unmet. 

The second blow to Byju’s growth came as the lockdowns ended and students returned to school. 

Edtech companies realized that the surge in their business during the pandemic was a temporary phenomenon. The theory that online learning would replace offline learning proved flawed as the situation evolved, leading to a reevaluation of the edtech landscape. 

The once seemingly invincible Byju’s found itself confronting the harsh realities of its unchecked expansion and questionable practices. 

Byju’s Financial Struggles: Assumptions, Gambles, and Debts

Much like the misguided notion of working from a bed, Byju’s also found itself on the wrong track. 

Their assumption that people would permanently adopt online learning proved flawed, as individuals ultimately returned to offices and schools. A full education, it seemed, could not be effectively delivered solely through screens. 

Moreover, a shift in the US Federal Reserve’s policy led investment companies to gravitate toward stable government bonds, prompting a withdrawal of funds from the volatile tech startup market. 

Suddenly, the once-flourishing flow of money into tech startups dried up, and even if available, the conditions and interest rates changed. 

Byju’s struggled to raise funds, and the situation worsened. The numbers painted a grim picture. 

In the fiscal year 2020-2021, Byju’s reported stagnant revenue at 2400 crores (INR), while incurring a staggering net loss of 4,500 crores (INR).

This risky financial gamble left many questioning the strategy behind such decisions. 

Compounding the issue, Byju’s chose to withhold financial data after March 31, 2021, leaving the country’s largest startup’s financial health shrouded in secrecy for 33 months. 

This lack of transparency raised concerns, especially considering the rapid pace of acquisitions and fund-raising activities. 

Byju’s voracious appetite for growth, marked by acquisitions and a hunger for expansion, became a critical error. 

The company, driven by the desire to become a 100 billion dollar entity, took on significant financial risks without prioritizing profit or financial sustainability.

An illustrative example of this was the acquisition of White Hat Junior for 300 million dollars in 2020. 

Today, White Hat Junior, under Byju’s, operates at a considerable loss. 

During the two pandemic years, Byju’s spent a whopping 2 billion dollars on acquisitions and extensive marketing efforts, including buying US companies to penetrate the American market. 

In November 2021, Byju’s sought a solution to their financial woes by taking a historic $1.2 billion term loan B from a US lender. 

This move, the largest loan ever taken by an Asian company at that time, reflected the urgent need for capital and underscored the precarious financial situation that Byju’s had found itself in.

Byju’s Crisis: Defaults, Legal Battles, and Uncertain Future

The founders of Byju’s, perhaps confident that their equity wouldn’t be diluted, believed in the grand vision of growing the business and reaping profits from the anticipated US expansion. 

By taking a historic $1.2 billion term loan B in November 2021, they aimed to propel the company’s valuation to an impressive $100 billion, clearing debts and securing their shares. 

However, the practical exam proved harsh, and the engineering logic faltered. Loans, especially of such magnitude, come with conditions, and the collateral is substantial. 

Lenders accused Byju’s of breaking promises and failing to meet loan conditions, resulting in a default. Legal disputes ensued across three different US courts, with Byju’s ceasing interest payments and lenders seizing Byju’s alpha subsidiary. 

Simultaneously, the business faced multiple challenges. Schools reopening, questionable marketing tactics, an unproven learning outcome despite substantial investment, and ongoing legal battles weakened Byju’s standing. 

Funding was depleted, forcing the company to cut costs and cease marketing spending for survival. 

In a surprising move, Byju Ravindran, his wife Divya Gokulnath, and brother Riju Raveendran sold 25% of the founders’ total equity, earning $400 million. 

This sale, carried out in the secondary market, raised eyebrows, especially considering the troubled state of the company. 

The latest estimate by Prosus, a significant technology investor group, slashed Byju’s valuation to $3 billion from last year’s $22 billion.

Prosus cited lack of transparency about financial conditions as a key factor for the 85% fall in valuation. 

The government initiated a probe against Byju’s under the Foreign Exchange Management Act, accusing them of violations amounting to 9000 crores. 

Byju’s response labeled the accusations as technical glitches, a recurring pattern in the company’s rhetoric. 

However, the undeniable fact remains that Byju’s has defaulted on payments, affecting employee salaries, incentives, PF, government TDS, FNF, vendor payments, lease, utility bills, and more. 

The situation worsened as the BCCI dragged Byju’s to the National Company Law Tribunal for insolvency proceedings due to unpaid sponsorship fees for Team India. 

The future for Byju’s looks uncertain, with potential repercussions extending beyond the insolvency proceedings initiated by BCCI. 

Final Chapter: Layoffs, Legal Woes, and Credibility Crisis

As the financial woes of Byju’s continue to unravel, the company faces a multitude of challenges. Outstanding payments to vendors have triggered legal notices, adding to the mountain of debts that Byju’s is struggling to address with dwindling revenue. 

Efforts to sell acquired assets during the pandemic have faltered due to inflated purchase prices, leaving Byju’s with limited options. 

The company’s attempt to raise funds for salaries by mortgaging a house for $12 million appears more like a PR stunt than a genuine financial strategy. Skepticism abounds, especially as reports emerge that employees have yet to receive their salaries, despite the purported mortgage. 

The credibility of Byju’s is further eroded by its mass layoffs, with 5000 employees let go since March 2022. 

Many parents find themselves ensnared in a debt trap, adding to the public’s growing discontent. Even as Byju’s founder, Byju Raveendran, and his family sell shares and acquire houses in various cities, the attempt to showcase a $12 million mortgage raises eyebrows. 

Former employees have taken to social media, exposing delays in salary disbursements, PF, FnF, and TDS for November. The company’s board members and investors, seemingly oblivious to the unfolding crisis, may struggle to garner sympathy. 

The future for Byju’s remains uncertain. Even if the founders resort to mortgaging more houses, the challenges seem insurmountable for the once-prestigious edtech giant.

The lesson from this saga extends beyond Byju’s. It emphasizes the importance of questioning and scrutinizing individuals and companies, irrespective of their public image. 

Timely inquiries could have prompted corrective actions, preventing the once-revered company from reaching its current desperate state. 

While the top-level executives may continue to live abroad, the real impact is felt by the employees and parents left grappling with the aftermath. 

The fate of Byju’s remains uncertain, and the repercussions of its downfall extend beyond the company itself.

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