Byju’s, the Indian edtech startup that became a global sensation, is now facing a series of challenges that threaten its survival. The company, which was once valued at $22 billion, has seen its valuation plummet to less than $3 billion, amid allegations of financial irregularities, misleading ads, aggressive sales tactics, poor quality content and employee unrest. Here are some of the key factors that led to Byju’s downfall.
Blinded by growth
Byju’s was founded in 2015 by Byju Raveendran, a former engineer and teacher from Kerala, who wanted to make learning fun and engaging for students. He launched an app that offered online courses in math and science, using animations and gamification. The app soon became popular among students and parents, who were looking for alternatives to the traditional and stressful education system in India.
Byju’s also attracted the attention of investors, who saw the huge potential of the edtech market in India and beyond. The company raised billions of dollars from prominent backers like Sequoia Capital, Tencent, Naspers, SoftBank and the Chan Zuckerberg Initiative. It also hired celebrities like Shah Rukh Khan and Lionel Messi to endorse its brand.
With abundant capital and ambition, Byju’s went on an acquisition spree, buying up several companies in India and abroad, such as WhiteHat Jr, Aakash Educational Services, Epic!, Osmo and Great Learning. It also expanded its product portfolio to include coding, test prep, reading, higher education and professional courses.
However, this rapid growth came at a cost. Byju’s spent heavily on marketing and sales, hiring thousands of sales representatives who aggressively pursued potential customers. The company also faced backlash for its misleading ads, which claimed that its app could improve students’ grades by 150% or make them future-ready by learning coding. Some of its ads were banned by the Advertising Standards Council of India for being unsubstantiated and deceptive.
Moreover, Byju’s quality of content and pedagogy came under scrutiny. Critics argued that Byju’s app was not effective in improving learning outcomes or fostering critical thinking among students. They also pointed out that Byju’s app was not aligned with the curriculum or assessment standards of different countries or regions. Some of its content was also found to be plagiarized or inaccurate.
Facing the heat
Byju’s troubles came to light in 2022, when it released its long-delayed financial statement for FY21. The statement revealed that Byju’s had incurred a net loss of Rs 4,588 crore ($612 million) on a revenue of Rs 5,541 crore ($738 million). The statement also showed that Byju’s had borrowed $1.2 billion from a US-based financing vehicle called Byju’s Alpha, which was backed by Chinese investors.
The financial statement raised red flags among regulators, investors and creditors. The Enforcement Directorate (ED), a federal agency that investigates financial crimes, raided Byju’s offices and residences of its founders in September 2022. The ED alleged that Byju’s had violated foreign exchange laws and laundered money through its overseas subsidiaries.
The creditors of Byju’s Alpha also took action against the company for defaulting on its loan repayment. They seized control of Byju’s Alpha and its assets, including its stakes in some of its acquired companies. They also filed lawsuits against Byju’s and its founders in the US and India.
The investors of Byju’s also lost confidence in the company and its valuation. Some of them, such as Prosus NV (formerly Naspers), Peak XV and the Chan Zuckerberg Initiative, exited their investments and resigned from Byju’s board. Others wrote down their stakes or demanded more transparency from the company.
Looking for a way out
Byju’s is now facing an acute liquidity crunch and a damaged reputation. The company has been trying to raise funds by selling some of its assets or businesses. For instance, it has been in talks with Amazon to sell Epic!, its US-based kids’ digital reading platform. It has also received interest from Reliance Industries to buy Aakash Educational Services, its offline test prep business.
However, these deals are not enough to solve Byju’s problems. The company still has to deal with the legal cases, regulatory probes and creditor claims. It also has to address the grievances of its employees, who have been facing layoffs, pay cuts and harassment. It also has to regain the trust of its customers, who have been complaining about poor service quality, refund delays and privacy breaches.
Byju’s story is a cautionary tale of how an edtech startup can lose sight of its core mission and values in pursuit of growth and valuation. Byju’s may have been the world’s highest valued edtech app, but it failed to live up to its promise of making learning fun and effective for students.