India’s edtech juggernaut Byju’s appears to be in serious trouble. Ever since its meteoric rise in mid-2020, I have, like others who have more than a passing interest in India’s education space, been stunned by the developments.
Each time, the company seemed to reach astronomical heights, its purported valuation broke every ceiling. It raised and spent vast amounts of money, including buying up little fish it felt some affinity towards. Along the way, as the Byju’s phenomenon gained momentum, investors and lenders appeared to jump in some kind of frenzy, possibly more out of a Fear Of Missing Out (FOMO) than their own firm conviction.
Last week, however, brought in so much bad news, that many analysts, observers, and experts in the sector declared that this was the beginning of the end for the darling of edtech. Three board members resigned as did its auditor, Deloitte and Haskins. A government probe had begun, which struck me as business as usual: the government can always be relied upon as a late or even one of the last entrants to any ongoing party.
There have been layoffs, valuation drops, and trouble with its lenders, all within a span of a few months. When it rains, it pours.
When The Stars Began To Dim
But as this house of cards crumbles before our eyes, let me point out that the red flags were always there for anyone who wanted to spot them. Although most of the media appeared oblivious and many published every word Byju Raveendran uttered verbatim, every once in a while a detailed investigation on some platform would raise some of the visible concerns. What we are seeing today is a combination of a flawed business model mixed with poor corporate governance, and perhaps even intent. Let me elaborate.
Allegations of misselling plagued the company right from the word go. Byju’s fast-talking, overpaid, young, and slightly brash army of sales executives often frightened parents into believing that the future of their progeny is hopeless unless they buy into Byju’s offerings.
A third-party loan is dangled before parents who may seem hesitant, making the deal seem sweeter. Which parent won’t agree to a few thousand rupees in easy monthly installments to guarantee a far rosier future for their child? On this hope, many would bite. Of late, some of these third-party lending companies have become wary, and this explains one end of Byju’s problems.
All through its journey, for reasons best known to itself, Byju’s has shied away from any third-party assessment of their bouquet of offerings, leading to a cloud over whether its online courses were leading to any kind of improvement in learning outcomes in the K-12 space. Do students who enroll for Byju’s courses perform any better at school math tests or get through this country’s absurdly competitive exams? There has never been any clear evidence to support this.
If the business model remained obscure, so did the financial probity and governance, in particular its recognising or recording revenues practices. Edtech companies typically sell products today that are to be delivered in the next two, three, or even four years. The money for the sale might come in installments across different years.
However, the company in question might record its revenue on the day of sale but the actual revenue might be far lower than the recorded one. In some cases, parents might not be able to pay in due course, some might cancel, and some money might come in only as the service is provided. Since the service is provided over say three years, the money may well come in three chunks once each year.
This might explain why its auditor Deloitte and Haskins has been squeamish about signing off on its financial results and could in part be one of the reasons it has now thrown in the gauntlet. The company reported operating revenues of Rs 2280 crore in FY 2021 with a loss of Rs 4588 crore, up from Rs 262 crore in the previous financial year.
Twinkle Twinkle Little Star
As has been seen with online businesses even in the past, things can disintegrate pretty swiftly and giants can turn into minnows: Snapdeal snapped and became a fraction of itself in the blink of an eye and before you knew it, it was Amazon all the way.
Many in the edtech and the education space maintain that Byju’s was too big to implode and that while it had lost some of its earlier luster, it would continue to twinkle, albeit a bit dimmer.
Even as some of its online products and offerings seem shaky, Akash, sources argue, represents one solid, brick and mortar asset in its portfolio, which can be listed and help pare down debt. Another buy – Great Learning – could be sold or listed too. Investors may take haircuts but the entity will survive in a diminished state.
Almost everyone in the space expects further falls in valuation, a subject of much debate and wonder in edtech. At its peak, Byju’s was valued at USD 24 billion, although revenues at peak were a fraction of this.
Mumbai’s financial circles say that valuation, like beauty, lies in the eyes of the beholder. This enigma need not be based on the present balance sheet of a company, but rather on the buyer’s perception of what this balance sheet could look like several years into the future, and how early you have got into the game. Who are we with dwindling bank balances to argue or question what gems wealthy investors spot, or how they choose to invest their money, and at what stage and value they opt to exit?
But can something valued at USD 3 billion (Rs 21,000 crore) at one point be sold in two years at a valuation of Rs 100 crore? Clever readers will know the answer: yes it can, as we saw with Jack Ma’s exit from Paytm Mall! Anything is possible and nothing is impossible.
It remains not widely expected but industry experts don’t rule out a “Byju’s without Byju” himself. As has been seen globally with WeWork and Uber or in India with Bharat Pe and Yes Bank, a change in leadership has often been seen as a way of moving forward when a founder or a leader in charge has failed to deliver, meet expectations or even let down stakeholders. The brain behind it all can and is dispensed with if required.
Others also argue that there could be a stellar collision if someone akin to Google creeps up from behind like it did for Yahoo, leaving the latter resembling a before and after advertisement except in reverse, Education experts like the Indian School of Business (ISB) Founding Dean, Pramath Sinha, maintain that while online education holds the key to India’s access and quality problems in the K-12 space, no player as yet has actually unlocked it.
Non-profit Khan Academy with its noble intentions and global ambitions is seen as the only credible beacon of hope so far. But assuming a new kid on the block comes up from behind with the right model, intent and governance practices, it is not inconceivable that it could leave Byju’s neither here nor there as Google did Yahoo. More in a state of slow languish instead of a dramatic explosion.
Feeling The Heat
The worry for the sector, which has been there since the meteoric rise began, is what happens if this star implodes. Investors in the edtech and the entire tech startup sector – which is already facing a funding winter – who burn their fingers will be far more wary going forward – as they probably should – and many genuine players may have to run that extra mile to raise funding for their ideas.
What’s worse is that parents, policymakers and all other stakeholders will be far more circumspect about buying any products on offer, even those that might work to their advantage since one bad egg spoils the basket. Parents in particular might lose confidence in a sector that is alien to them to begin with.
Past precedents haven’t helped matters. Sector experts draw parallels with Educomp, the Gurugram headquartered company set up in 1994, which made similar promises and raised money against its receivables from schools, which was never received. Schools that had bought in either lost interest or lost confidence in Educomp’s promise.
In Educomp style and like any falling or imploding star, Byju’s can end up destroying many things in its wake.
(Anjuli Bhargava is a senior writer and columnist based in Goa. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)