EdTech Crisis: Rise And Downfall of Byju's The downfall for the company started when it failed to release results for FY2022 and later they were released after 18 months. The company is yet to declare its FY2023 results.

The US bankruptcy court on Thursday imposed penalties on Riju Ravindran, director of the edtech major Byju's and brother of founder Byju Raveendra, for contempt of court after he refused to disclose the location of USD 533 million in term loan proceeds.

This comes days after former SBI chairman Rajnish Kumar and ex-Infosys chief financial officer Mohandas Pai have decided to discontinue as members of Think & Learn's advisory council after a discussion with the founders.

Earlier Byju Raveendran wrote to employees, blaming the non-payment of their salaries on investors on whose plea the National Company Law Tribunal had blocked access to USD 200 million that the company raised through a rights issue of shares in January.

The edtech platform, run by the then billionaire CEO Byju Raveendran, was the poster boy of Indian start-up ecosystem and was expected to herald a change in pedagogy at schools and colleges. The startup was valued at USD 22 billion (1,82,000 crore) in 2022 as its popularity rose by offering online and offline education courses.

However, the last year proved to be a tough one for the start-up with its popularity and valuation declined while several of its investors called for leadership change at the edtech firm.

Today, Think & Learn Pvt Ltd, Byju's parent, is in urgent need of funds, and faces huge financial losses, a barrage of legal suits, and massive investor backlash. Its valuation has fallen below USD 1 billion (INR 8,300 crore), and investors are pushing to oust Raveendran and members of his family from the company.

How Byju's started

In 2007, Raveendran started his coaching centre which catered to students who were trying to crack MBA entrance exam CAT. Later in 2015, he launched his learning app Byju's which slowly gained prominence and the founder went on to sign superstar Shah Rukh Khan as a brand ambassador in 2017.

In 2022, the company said it planned to double the number of Byju's Tuition Centres (BTCs) from more than 250 to 500 by the end of the financial year. It claimed to be "the world's leading edtech company with over 150 million registered learners globally".

The Downfall

The downfall for the company started when it failed to release results for FY2022 and later they were released after 18 months. The company is yet to declare its FY2023 results.

It also engaged itself in the laying off around 5000 employees which brought down valuation of the company. It also defaulted on loans taken from US lenders. In 2023, company's auditors Deloitte Haskins & Sells resigned, citing the inability to finalise reports for the financial years ended March 2021 and March 2022.

Now the case is going on in the NCLT and court in US after lenders moved to court over the repayment of USD 1.2 billion taken by company's subsidiary Byju's Alpha.

At an extraordinary general meeting (EGM) in February 2024, a group of investors passed resolutions for the removal of Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran from the company's leadership. The validity of the resolutions is now before the Karnataka High Court.

After this move by the investors of the company, Entrepreneur spoke to Shivangi Bubna, Executive Vice President & Head Investments, Mumbai Angels who suggested removing a founder can also result in a destabilizing effect, leading to confusion, distrust, and departures of key personnel, hindering the company's ability to function smoothly.

"However in some cases, removing a founder might be necessary to address significant issues like mismanagement, ethical concerns, or a lack of skills needed to scale the company. In such cases, replacing the founder with an experienced professional who possesses the necessary skills and experience for the next stage of growth can be beneficial, and if seen in the light of greater transparency and more efficient governance, might also find favour with existing and future investors," she had said.

What Went Wrong?

During 2017 and 2021, the company acquired around six ventures that did not generate the expected cash. It raised more than USD 5 billion in equity and debt from various global investors, and used about half in acquisitions in 2021 and 2022. Its USD 940 million acquisition of Aakash Educational Services Ltd in 2021 ran into trouble on the issue of stake transfer.

Speaking to Entrepreneur, Giridhar Malpani, Founder, Climber Capital said that the start-ups should avoid spending too much on campaigns and expensive acquisitions.

"Aggressive and misleading advertising campaigns, corporate governance issues and expensive acquisitions are some of the factors which lead to the downfall of the start-ups and one should avoid while running a successful business in the market," Malpani said.

He also said that maintaining a healthy relationship with investors is crucial as they help in growth of the company. "Reporting structure should be more periodic and more diverse shareholder representation or involvement should be there in the company's management," he added.

Way forward for Byju's

The company said that the success of the USD 200 million rights issue will ensure that it has sufficient operational capital to fund short-term needs. "All we need to do is fight with our leader. We have written to all the shareholders in Byju's to express our steadfast commitment," the company had said in a note.

Meanwhile Malpani suggests that rights issue should be let through so that the company's survival doesn't get at stake and it gets sometime to stabilise the business.

He further said, "While value erosion is definitely going to happen, we just can control how much of it we can save. Company shutting down will not just be a disaster for Byju's and its shareholders but the entire education ecosystem overall."