Byju’s Worst Year Ever: Huge Layoffs, Poor Selling, Unethical Practices & Sponsoring FIFA
At the beginning of 2022, while the couple was attending a conference sponsored by an edtech investor in San Diego, California, Byju Raveendran, the creator of the eponymous Byju’s, India’s most valuable startup, and his wife and co-founder Divya Gokulnath, things seemed to be going well.
Nearly all of India’s edtech entrepreneurs were present at the conference, and Raveendran and his wife were the talks of the town after outpacing their rivals to establish themselves as the country’s largest edtech company. The two, who arrived in San Diego earlier than most entrepreneurs, were meeting with investment bankers, investors, and government officials in the US in order to discuss the possibility of listing their edtech company there.
“It (the IPO) was nearly concluded. They seemed to be going public very soon because they had noteworthy evolution ambitions. According to what we heard, they used their purchases to create not just one but three to four sizable enterprises, said an edtech founder who attended the conference but asked to remain anonymous.
“We were all content. We believed that the Indian edtech community had grown. Byju’s was supposed to be the business to keep an eye on after Freshworks. As the founder continued, “I recall the other entrepreneurs at the conference talking about how Byju’s IPO would be a turning point for edtech businesses in India and would help us all scale further.
However, none of the edtech pioneers, not even the Byju co-founders, foresaw what was to come. It was a horrible year for the edtech industry as a whole, but it was awful for Byju’s. The business is still making headlines, but not for the right reasons. The $22 billion corporation has faced criticism for accounting issues, alleged course mis-selling, and mass layoffs in 2022, making it the most scrutinized edtech company in the world. Byju’s opted not to comment on the news.
It’s all good till March.
Few businesses in the country experienced the chills of the financial winter until March, and Byju’s was no exception. The company, like most edtech startups in the nation, had benefited from the pandemic-related constraints on staying at home.
The sector was flourishing due to the quickly increasing demand for online learning services, and Covid, which was quickly taking over the nation until March, indicated that it would be some time before traditional tuition centers reopened.
Nevertheless, unlike the first two, the third wave of the epidemic subsided more quickly. As a result, fewer people sought out online education, and offline classes once again began at schools, colleges, and coaching facilities. Now that demand for their primary business was declining, edtech businesses had to figure out a method to meet their expectations.
In terms of online edtech enterprises, Byju’s appeared to have been the first to foresee a decline in demand, and the business was swift to respond. It committed $200 million in February as part of a roadmap for its post-pandemic journey to open tuition centers across the nation.
The business then raised a sizable sum of money in March as part of one of India’s largest PE/VC (private equity/venture capital) rounds of 2022, raising its valuation to $22 billion. With the fundraising, Byju’s rose to become the most valuable business in the country and the most valuable edtech startup globally. Taking the company public by the end of 2022 was Raveendran’s purpose, even though the money raised did delay it by a few months.
Byju’s was all set to make 2022 a memorable year with millions of cash in the bank, a presence in the offline market to compete with traditional coaching heavyweights, and market supremacy in the online category. To top it off, the business also agreed to become one of the FIFA World Cup’s titles sponsors, signing a multi-million dollar agreement that made the edtech giant look enormous. But very few people were prepared for what happened next.
The new fiscal year that began in April 2022 had a rough opening for two months for India’s startup sector. Only one new unicorn was minted in the nation in April and May, compared to ten during the same period in 2021. Numerous businesses started taking such actions in anticipation of a prolonged fundraising winter, which is why stories about startups and unicorns (startups valued at more than $1 billion) laying off employees in large numbers started to surface.
Even the most well-funded startups in the nation were making massive layoffs. However, considering that Byju’s had just disclosed an $800 million fundraising, very few predicted that the funding winter would hit Byju’s severely. However, a report in the online journal The Morning Context (TMC) in May claimed that Byju’s was selling its trade receivables, which is typically taken as a sign that a company needs access to quick cash.
The sale or securitization of trade receivables is a method for ensuring that a company gets timely cash. According to the research, Byju’s securitized its receivable accounts using pass-through certificates (PTCs), which allow an issuer to pool together illiquid capital assets including trade receivables, and converted these into marketable securities that might be traded to investors. In addition, it revealed that Byju’s had already sold off eight of these lots in 2019 alone.
“The (TMC) findings created a lot of controversies. I still don’t understand why Byju’s thought it was important to get these. Securitization of trade receivables is extremely rare in the edtech industry. Honestly, I don’t understand why they would. It suggests that funds were low, which is concerning given Byju’s history of successful fund-raising “another privately funded education technology company founder stated.
Just one month after the TMC article, The Ken, a different online news source, stated that Deloitte, Byju’s auditor, had dropped to approve its FY21 (2020-21) financial figures because of problems with the way Byju’s had recognized its revenues. According to Ken’s report, the company had been unable to file its results for more than 15 months since the end of the financial year because Deloitte had refused to sign off.
Six months after the end of the financial year, in September of each year, private businesses like Think & Learn, the registered entity that owns and operates Byju’s, must file their financials.
Earlier this year, Byju’s stated in the press that the company’s FY21 financials will be turned in by the close of June. but failed to succeed. Byju’s failed to meet three of the FY21 reporting release dates it had established due to Deloitte’s failure to authorize.
Congress MP Karti Chidambaram became concerned about Byju’s failure to submit its FY20-21 audited financial reports and wrote to the Serious Fraud Investigation Office (SFIO) in July to ask them to look into Byju’s finances in detail. Byju’s received a letter from the Ministry of Corporate Affairs (MCA) in August asking for a response regarding the delay in submitting its audited reports.
In the middle of September 2022, Byju’s finally made its FY21 audited financials public through press announcements. But given Deloitte’s criticism of Byju’s internal financial controls, the financials caused a lot of worries.
The financials also showed that WhiteHat Junior had a big cash loss, that Byju’s ESOP Plan had expanded too big, and that there were problems with the income statements because the company had announced an unexpected drop in FY21 earnings because of adjustments, as proposed by Deloitte.
WhiteHat Junior is a code-learning company that Byju’s acquired in 2020. Undoubtedly, FY21 was a watershed year for direct-to-consumer (D2C) edtech companies as students were forced to transition to online learning as a result of restrictions brought on by the epidemic.
The FY21 financials also exhibited that Byju’s had delayed payments to Blackstone, a shareholder in Aakash Educational Services with a 38 percent ownership and a private equity powerhouse. For $950 million, Byju’s bought offline tutoring juggernaut Aakash in April 2021.
Some media reports from earlier in June asserted that Byju’s had also delayed paying Aakash’s promoters. However, the business claimed in July that it had paid the promoters of Aakash’s debts. Byju’s said that the payment dates had been mutually agreed upon between the two businesses and that the delay in payment was caused by regulatory rules.
When Byju’s formally submitted its financial information to the MCA in October, it became clear that the separate company that runs its K–12 (kindergarten–class 12) main business had likewise undergone losses. This company made money in FY20 (2019–20). As per MCA requirements, Byju’s was instructed to file its FY22 (2021–2022) results by September but has yet to do so.
Problems with financing and valuation
In March 2022, Byju’s announced financing for $800 million at a valuation of more than $22 billion. But a sizable portion of the money was not given to the corporation. Byju’s was short of some cash because Sumeru Ventures, a VC firm that was meant to take part in the investment round, withdrew.
As a result of macroeconomic challenges, Oxshott Capital, another investor who had committed to taking part in Byju’s fundraising round in September 2021, also withdrew. From its previous two equity fundraising, Byju’s asserted that it had failed to raise nearly $300 million in total.
In addition to the primary fundraising of $250 million, the transaction included secondary sales valued at $16–17 billion, down from its $22 billion estimate in March. But secondary sales frequently take place at a discount. According to Moneycontrol, the corporation was even valued at between $11 and $12 billion back in October.
The lackluster financial performance of Byju in FY21 served as the backdrop for the flat funding round and the willingness of new investors to participate only at 50% of the company’s current valuation. The business, however, refuted all of this, claiming that it had unaudited gross sales of Rs 10,000 crore in FY22 (2021-22). Discounts, cancellations, and refunds are not included in the total sales.
Furthermore, one of Byju’s largest owners, Prosus, reduced the fair value of its almost 10% interest in the business to $578 million in November, essentially setting Byju’s ‘fair value’ at $6 billion. The Netherlands-based investor also determined not to take part in Byju’s subsequent investment rounds, which caused its ownership to decline to less than 10%, and, as a result, it alleged it lost control over Byju’s activities.
Investors in debt put pressure on Byju’s as well. One of the largest term loans for Indian startups was raised by the company last year, totaling $1.2 billion from a number of investors.
As the edtech behemoth had broken some terms, including a September deadline for publishing its results for the year ended March 31, 2022, these creditors were reportedly asking for a quicker payback of some of the debt. Borrowers are not required to pay the principal in full up front in TLB. In contrast to a typical loan, when they pay some interest and some principal during the course of the loan, they can pay a sizable sum at the end of the loan period.
The creditors and Byju’s also reached new agreements, which the business accepted, according to the newspaper. According to the Bloomberg story, the terms were renegotiated to include giving monthly business updates, employing a CFO and raising the loan’s interest rate.
Difficulties with Operations
Any firm would have found it challenging to carry on as usual in the face of pressure from investors, the media, auditors, creditors, and the government, and Byju’s was no exception. Byju’s also had to contend with pressure from its most significant stakeholders — its staff and customers — throughout the year.
The business has already faced criticism for allegedly mistreating both customers and employees. But this year, as the media narrative, in general, shifted against Byju’s, reports of the abuse of staff members and consumers spread more extensively than ever.
But as part of a reorganization effort in June, the business let off more than 300 workers from WhiteHat Junior. After firing 300 employees from WhiteHat Junior the previous day, Byju’s fired roughly 350 from Toppr, a test preparation platform it had recently bought.
According to a Moneycontrol story, Byju’s planned to lay off roughly 2,500 workers from its group companies in the same month, with about 1,000 coming from its core business. The story was “vehemently disputed” by Byju’s. A few months later, however, Byju’s said it would be laying off 2,500 employees, or 5% of its staff, across subsidiaries and teams in order to achieve profitability by March of the following year.
Over 5,000 employees from all of the group companies at Byju’s received performance notices, according to a Moneycontrol report from October. Additionally, the business revised its internal hiring practices for sales personnel.
The new policy gave Byju’s the authority to dismiss staff immediately without giving them a chance to perform better, as was the case in the past. Byju has also refuted this claim. However, according to recent media estimates, the company’s personnel count has decreased from over 50,000 in October to just over 35,000.
The company allegedly compelled over 170 employees to resign at Byju’s in Trivandrum during the same month since it planned to close the location. They met with officials of the technical welfare association Prathidhwani and Kerala’s Labor Minister V Sivankutty. Byju’s originally planned to shut down its location in Trivandrum, despite state officials interceding to prevent this.
Byju’s has strenuously refuted allegations that the company doesn’t have a lot of cash on hand. Although Moneycontrol revealed that Byju allegedly acquired Rs 300 crore from its wholly-owned business, Aakash, a representative for the company assured the publication that the company has more than Rs 9,000 crore in cash at its disposal.
However, after making a concerted effort to reduce its burn rate, the company has recently fallen behind on vendor payments. According to a recent media source, Byju’s owes numerous vendors more than Rs 90 crore.
Byju’s aggressive cost-cutting efforts this year led to a lot of social media backlash against the company after Messi was named as its brand ambassador for its “Education For All” project. The business asserted that Messi received essentially no compensation for the collaboration.
After the FIFA and T20 world cups, Byju’s advertising expenditures substantially decreased. According to a recent Economic Times article, the business was reportedly looking to end its jersey agreement with the BCCI (Board of Control for Cricket in India).
In addition, Byju’s and the businesses in its network received harsh criticism for allegedly overselling and misrepresenting their courses. Great Learning, owned by Byju’s, had come under fire for allegedly deceiving students into purchasing a PGP through IIT-certificate B’s program called the Continuing Education and Quality Improvement Programme (CE&QIP) (post-graduate program). The Indian Edtech Consortium (IEC), a self-regulatory organization for edtech businesses, made a decision in favor of Great Learning, though.
According to a June media report, Byju’s was also required to resolve a consumer court complaint brought by a parent by providing a refund of Rs 99,000 and compensation of Rs 30,000. On December 25, a different media report stated that Byju’s was required to reimburse a Ludhiana resident for Rs 44,500, and the court also instructed the business to pay Rs 7,000 as litigation costs and compensation.
To make matters worse, a two-part series published in December by the Thomson Reuters Group news outlet Context revealed additional information about Byju’s sales strategies, toxic workplace environment, and alleged deception of low-income families into purchasing its courses, which attracted the attention of the National Commission for the Protection of Child Rights (NCPCR). The organization for children’s rights summoned Raveendran. Context’s report was widely read and shared because it is a part of a worldwide news agency.
On December 23, a founding member of Byju’s appeared before the NCPCR on behalf of Raveendran and pledged that Byju’s will stop marketing its courses to households with monthly incomes of less than Rs 25,000 in addition to changing its refund policy.
The most valuable edtech company in the world is facing a year of reckoning in 2022. In order to reach profitability on a corporate level by FY23 (2022-23), the corporation established a revenue target of around $2 billion. Given the recent adjustments it has had to make to its sales methods and return policies, industry observers believe Byju’s will have difficulty reaching the income goal it has set for itself.
Additionally, edtech experts said the company will need to adapt its course offerings in order to reach a bigger audience in India and throughout the world at a time when demand for online learning solutions is waning.
Undoubtedly, Byju’s is placing a lot of money on the offline market in light of the declining demand for online education. According to Gokulnath’s most recent media statements, it predicts that offline will contribute at least a third of its entire revenues during the next two years.
In 2023, Byju’s and its investors will face many challenges. It will be interesting to watch, for starters, if the business is able to reach its revenue and profitability goals. Aakash Educational Services will also be going public next year, with an estimated valuation of $3.5–4 billion. Byju’s, which paid $950 million for Aakash, will profit approximately three to four times on its investment if the IPO preparations are successful. Keep an eye on this space to learn how 2023 plays out for the most valuable edtech business in the world.
Edited by Prakriti Arora