Byju’s, once valued at $22 billion, is now struggling to survive amid a series of legal, financial and operational challenges. The company is in a standoff with its investors, who are seeking to oust the founder and CEO Byju Raveendran. The company has also missed payments on a $1.2 billion loan and is facing a lawsuit from its US-based lender. The company’s valuation has plummeted to between $1 billion and $3 billion, according to some of its investors. The company has also laid off thousands of employees and delayed salaries for January. Here is a detailed analysis of the factors behind Byju’s crisis and how it is affecting the edtech sector in India.
Legal troubles
One of the major reasons for Byju’s crisis is the legal dispute with its US-based lender Redwood, which had extended a $1.2 billion term loan to Byju’s in November 2021. The loan was supposed to be repaid over five years, with quarterly interest payments of ₹ 330 crore. However, Byju’s failed to make the interest payment in December 2023, citing cash flow issues. Redwood then filed a lawsuit against Byju’s in the US, demanding immediate repayment of the entire loan amount plus interest and penalties. Byju’s counter-sued Redwood, accusing it of accelerating its demand and breaching the loan agreement.
The legal battle has put Byju’s under immense pressure, as it has to deal with the risk of losing its US assets, including its subsidiaries WhiteHat Jr and Osmo, which it had acquired for $300 million and $120 million respectively. The lawsuit has also damaged Byju’s reputation and credibility in the global market, making it harder for the company to raise funds or attract new customers.
Another legal issue that Byju’s faced was the Enforcement Directorate (ED) raid on three of its offices in April 2023, under the provisions of the Foreign Exchange Management Act (FEMA). The ED slapped a FEMA violation notice on Byju’s worth ₹ 9,362.35 crore, alleging that the company had received foreign funds without proper approval from the Reserve Bank of India (RBI). The ED also claimed that Byju’s had used shell companies and dubious transactions to evade taxes and launder money.
The ED raid was a huge blow for Byju’s, as it exposed the company’s lack of transparency and compliance in its financial dealings. The raid also raised questions about the source and legitimacy of Byju’s funding, which had come from several foreign investors, including Naspers, Tencent, General Atlantic, Tiger Global and others.
Investor revolt
Another factor that contributed to Byju’s crisis was the investor revolt against the founder and CEO Byju Raveendran. A group of investors, holding about 40% of the company’s shares, sought an extraordinary general meeting (EGM) in February 2024 to adopt resolutions on governance, financial mismanagement and compliance issues. The resolutions included reconstituting the board of directors so that it is no longer controlled by the founders, and removing Byju Raveendran from his position as the group CEO.
The investors accused Byju Raveendran of being responsible for the company’s downfall, as he had made several strategic blunders and failed to address the operational challenges. They also alleged that he had misused his authority and influence to benefit himself and his family members, at the expense of the company and its stakeholders.
The investor revolt was a sign of the loss of trust and confidence in Byju Raveendran’s leadership, as he had been hailed as a visionary entrepreneur who had revolutionized the edtech sector in India. The revolt also reflected the dissatisfaction and frustration of the investors, who had invested billions of dollars in Byju’s, hoping for high returns and growth.
Operational challenges
The third factor that led to Byju’s crisis was the operational challenges that the company faced due to the changing market dynamics and customer preferences. The demand for online education, which had surged during the Covid-19 pandemic, started to decline in 2023, as schools reopened and offline learning resumed. The competition in the edtech sector also increased, as new players entered the market with innovative offerings and lower prices.
Byju’s failed to adapt to these changes, as it continued to rely on its expensive and standardized products, which did not cater to the diverse needs and expectations of the customers. The company also faced criticism for its aggressive sales tactics, poor customer service and low-quality content.
The operational challenges resulted in lower revenue and higher costs for Byju’s, which affected its profitability and sustainability. The company had to resort to cost-cutting measures, such as laying off thousands of employees across various departments, and delaying salaries for January 2024. The company also faced difficulties in raising funds, as its valuation had dropped significantly and its credibility had been tarnished.
Impact on the edtech sector
The crisis in Byju’s has had a negative impact on the edtech sector in India, as it has shaken the confidence and optimism of the investors, customers and entrepreneurs. The crisis has exposed the vulnerabilities and risks of the edtech business model, which relies heavily on external funding, high customer acquisition costs and uncertain regulatory environment. The crisis has also highlighted the need for better governance, transparency and accountability in the edtech sector, which has been largely unregulated and unscrutinized.
The crisis in Byju’s has also created opportunities for other players in the edtech sector, who can leverage their strengths and differentiate themselves from Byju’s. Some of the players who have emerged as potential challengers to Byju’s are Unacademy, Vedantu, upGrad, Eruditus and Simplilearn. These players have focused on offering more personalized, affordable and quality products and services, catering to various segments and domains of online education.
Conclusion
Byju’s, which was once the poster child of the edtech sector in India, is now facing a severe financial crisis, which has threatened its survival and growth. The company is facing multiple challenges, such as legal disputes, investor revolt and operational issues, which have eroded its valuation and reputation. The company is trying to overcome these challenges by raising funds from existing investors through a rights issue, and by resolving the issues with its lenders and shareholders. However, the company will have to make significant changes in its strategy, leadership and culture, if it wants to regain its position and potential in the edtech sector.