Edtech muddle: There are lessons to be learned as Byju’s difficulties worsen

Byju Raveendran, a former instructor who is now an entrepreneur, was the face of India’s startup scene until recently. In 2022, the educational technology (edtech) business Byju’s was valued at about $22 billion. It is now less than $2 billion. Market analysts claim that the collapse provides a succinct lesson for India’s business sector. They go on to say that in addition to problems like overvaluation and expensive acquisitions, the story of the Byju’s shows corporate misgovernance. It also emphasizes how there is no system in place to guarantee corporate intelligence.

In 2011, Byju Raveendran launched his tech business, providing everything from offline tutoring to online courses. During the COVID-19 epidemic, when online education services were in great demand, it drew billions of dollars from investors worldwide. His startup received backing from reputable venture capital firms, including Qatar Investment Authority, Prosus, and BlackRock.

After that, Byju’s quickly bought a number of tech companies with specialized knowledge in several industries. Think and Learn, a corporation owned by Byju, acquired Aakash, Great Learning, and Epic, three very successful offline businesses.

The company sponsored the Indian cricket team during the pandemic and even appointed football sensation Lionel Messi as a brand ambassador. It seems that brand development took precedence over the essentials of business.

Following the initial frenzy, when Byju’s tablets broke records for sales of online studies under COVID-19 limitations, the sales of the tablets began to decline in 2022 as life returned to normal and families began sending their kids to school and working. This, together with very ambitious spending, caused problems for the tech business.

The corporation was accused of financial mismanagement when it experienced losses and disagreements over unpaid debts to many other enterprises. Deloitte, an auditing company, was forced out due to allegations of opacity from investors. The matter reached a breaking point in January of this year when the company’s founder and CEO, Byju Raveendran, was to be removed from office via an Extraordinary General Meeting called by the Netherlands-based Prosus. Now, they want the family to completely leave the company, despite the founder’s last-ditch effort to remain CEO.

The National Company Law Tribunal (NCLT) has begun hearings due to charges of mismanagement, and the Ministry of Corporate Affairs has begun its own inquiry into the company’s operations.

A few days ago, stockholders who wanted Byju Raveendran removed engaged in a public slanging battle. Additionally, the government has chosen to expedite the inspection report. Meanwhile, the Enforcement Directorate has extended its warning to be on the lookout for the founder.

Former managing partner of Arthur D. Little and McKinsey & Company Barnik Maitra claims that Byju “tried to do too many things and lost focus on its core business.” Because of this, the majority of its cash-down purchases—including WhiteHat Jr.—were later written down. Byju ought to have been more frugal with his investments and outlays. Interestingly, the Board refrained from becoming involved in any of the owners’ reckless spending choices. Corporate governance and the Board both completely failed. The corporation made an effort to increase income quickly. It didn’t give its internet offering any time to develop a following and acquire momentum in the marketplace.

Unwilling to give their name, a senior market analyst claims that corporate misgovernance is frequently to blame for these incidents. If governments had considered establishing a corporate intelligence framework in the past, many of these “misadventures” might have been prevented. He emphasizes that if a corporate intelligence apparatus had been in place, which would have given more openness, a situation such as Byju’s may have been prevented.

The analyst states that corporate governance is necessary to monitor the frequency of these occurrences and that, in the case of Byju, it was evident that all decision-making was centralized and that the tech company overextended itself, making it unsustainable. “However, the fact that a company that isn’t even listed on the exchanges grew to be a $22 billion entity highlights the deficiency in corporate oversight and financial intelligence, and emphasizes the necessity of having checks and balances.”

According to experts, the government must intervene and establish a corporate intelligence system, particularly in light of its recent promotion of the Startup India program and encouragement of entrepreneurs. They point out that the prevalence of these companies rising to be successful and then failing within a few years is bad for both the corporate sector and the expanding startup scene. Thus, scrutiny is essential.

Serial tech entrepreneur Kunal Nandwani says, “The entire startup universe needs a course correction, and though it is happening gradually, such entities need to keep their revenues and profits within realistic parameters.” He attributes some of their demise to the overvaluation of entities. He goes on, “Even venture capitalists are at fault.”

“The issue is that venture investors tend to overvalue firms, as shown by Byju’s. The business model as a whole eventually becomes unsustainable, according to Nandwani.

According to Nandwani, organizations such as Byju fail over time because, unlike listed corporations, they desire to grow quickly and are overvalued by venture investors in their early years.

Unlike public firms that provide quarterly or at most six-monthly estimates, these companies anticipate strong progress and returns on investment over an extended period of time. Thus, he explains, many firms get into problems when their estimates don’t match the real figures.

He asserts that Byju engaged in improper valuation and accounting procedures. Additionally, it paid cash up ahead when buying businesses, which caused its value to drop precipitously. It formed unprofitable partnerships with the Board for Control of Cricket in India (BCCI) and gave Argentine superstar Lionel Messi a $5 million contract to serve as its worldwide ambassador. These investments eventually grew unmanageable and resulted in losses, according to Nandwani.

“A sense of responsibility needs to be inculcated in such entities, which are coming up like fast-food joints,” adds another analyst, who wished to remain anonymous, “while reasonable projections of earnings and revenue, a sustainable business model and focus on core operations are options needed for startups to succeed in the long run.”

Paytm Payments Bank, another company under fire, is being investigated by regulators for suspected transgressions in its operations.

Similar circumstances applied when Japanese company Daiichi-Sankyo purchased a controlling share in pharmaceutical giant Ranbaxy Laboratories in 2008. In the same year, the Japanese company entered the expanding Indian pharmaceutical sector by paying Rs 22,000 crore to acquire the majority of Ranbaxy. Daiichi, however, brought an arbitration suit against Ranbaxy in Singapore in 2013. The Indian pharmaceutical giant was charged by the corporation with falsifying information and concealing facts.

The lawsuit started when Ranbaxy settled for $500 million with the US Department of Justice after entering a guilty plea in May 2013 for falsifying information and engaging in fraudulent activity to get quick medication approvals. But as it turned out, Ranbaxy knew as early as 2004 that their purportedly incorrect regulatory filings may have negative consequences.

Of course, things are not like this just in India. Sam Bankman-Fried was found guilty in the US in November of last year of scamming users of his Bitcoin exchange. American businesswoman Elizabeth Holmes started serving her jail term in May 2023 after misleading investors about her biotech enterprise, Theranos.

“Startups should use investor funds wisely and make cautious investments going ahead. Maitra argues that the government had to intervene and provide a suitable structure for safeguarding the interests of investors.

“There should be corporate governance in place. Additionally, before considering growth, companies should make sure that product-market fit is established. Until there is proof of consumer traction and a route to profitability, at least from a unit economics perspective, they shouldn’t be too ambitious, he continues.

Much of Byju’s meteoric ascent may be attributed to the chance presented by the COVID-19 lockout and limitations. The pandemic significantly altered the educational landscape, setting the stage for the widespread use of online learning. Edtech businesses have realized this enormous potential. However, as soon as the educational institutions opened, offline education—the traditional counterpart—quickly reclaimed the lost ground. The effectiveness of the two alternatives is still up for dispute.

According to Hansraj Suman, an associate professor at Aurobindo College, University of Delhi, online learning is not as successful as in-person instruction since it cannot have the same influence on students as in-person instruction.

“Over time, it is evident that these tech companies are facing a decline in business as students choose to attend classes in person every day instead of online,” he adds. He also highlights the difficulties in advancing online learning, pointing out that underprivileged students and those residing in rural regions suffer, and inadequate Internet access may have a major influence.

In the long term, Byju’s problems may or might not be addressed. It’s a wake-up call as the once-shining star of the tech industry turns bad. It is imperative that the nation’s startup scene learns its lessons, and learns them well, lest it implode like the dotcom bubble, which broke 24 years after it entered the market with a boom.

Following the growth and collapse of an ed-tech powerhouse

Kerala-born in the late 1990s and early 2000s Byju Raveendran is a BTech student at the Government College of Engineering in Kannur. He has a passion for teaching and has assisted many students in passing difficult examinations.
Byju’s classes were established in 2007. tastes of first success.
Byju’s wife Divya Gokulnath is set up in 2011.
2015 saw the app’s launch.

2017 saw the company get an endorsement from superstar Shah Rukh Khan.
2018 Sees 15 million users, reaching unicorn status.
2019 sees the Indian cricket team’s primary sponsor change. Byju purchases WhiteHat Jr., Aakash, Toppr, Epic, and Great Learning around the same period.
2022 appoints legendary Argentine football player Lionel Messi as a brand spokesperson. becomes one of the FIFA World Cup 2022’s official sponsors.

2020 obtains $250 million from Davidson Kempner, an investor.
2023 Think and Learn Private Limited, the parent company of Byju, is raided by the ED on suspicion of breaking foreign currency restrictions. The CEO receives a show-cause letter from the ED in November due to FEMA violations.
2024 Byju Raveendran is prohibited from leaving the nation by an ED lookout circular notification issued in February.