Does the collapse of Byju’s mean the end of edtech?

The company’s valuation has been written down from $22 billion to $1 billion. It could lose unicorn status soon. Its workforce has dropped from 60,000 to 25,000. If the free fall continues, no investor will touch the edtech sector for a while.

Could this mean the end of edtech as a sector?

Byju’s has suffered blow after blow in the past few years. Claimed to be India’s first edtech unicorn, with valuation at its peak around March 2022, the company is now struggling to pay salaries. CEO Byju Raveendran said he had to “move mountains” to pay pending January salaries last week.

Over the years, the startup has spent around $2.5 billion acquiring over a dozen firms across 2021 and 2022. This cash came from a war-chest of more than $5 billion in equity and debt raisings from backers as well-known as General Atlantic, Silver Lake, Peak XV, Lightspeed, Chan Zuckerberg Initiative, BlackRock, UBS, Prosus Ventures and B Capital.

On one occasion, Raveendran boasted on TV that he could raise $300 million in a week after a planned investment of that amount fell through. However, in late January, the company floated a rights issue to raise $200 million. The issue, set to stay open for 30 days, suggests a stark reassessment of Byju’s valuation of $22 billion as the company is willing to issue shares at a valuation close to $250 million at best. It may struggle to raise that cash with the adjustment signalling the company’s departure from its unicorn status.

The cash crunch is only part of the problem – there are other legal issues. The company is facing an Enforcement Directorate investigation for alleged violations of FEMA. In the US, its subsidiary Alpha has just filed for bankruptcy after defaulting on a $1.1 billion debt.

Losses at the Byju Raveendran-led company more than doubled to ₹8,245 crore in FY22 from ₹4,564 crore a year ago, while consolidated income rose to ₹5,298.43 crore from ₹2,428.39 crore, according to the 2021-22 earnings report filed last month.

The company’s previous auditor Deloitte had released a comprehensive statement about the FY21 financials pointing out that accounts had been restated in terms of revenue recognition. The company used to recognise all the revenue for a three-year or five-year signup in the first year itself even though the cash was actually received over a longer period and many students would cancel without completing the course.

In June 2023, Deloitte quit as auditor. Three board members also quit. Through 2023, investors such as Prosus started to write down the value of their investments. According to their revaluations, the company’s valuation fell first to approximately $5.1 billion and then to less than $3 billion. 

The January rights issue implies even that was very optimistic. Incidentally, news reports suggest that the workforce had fallen from a peak of over 55,000 to less than 30,000 by January 2024 with a series of mass layoffs. There are rumours that the company has not been able to honour its deal with IPL and it has shelved a deal with Lionel Messi to get the ace footballer onboard as its global brand ambassador.

It’s obvious from all the above that the business is in deep trouble. Shareholders have been calling for an extraordinary general meeting where they will vote to try and oust the founder, his wife Divya Gokulnath and his brother, Riju Raveendran from the board. But the founders say that the shareholders don’t have this power.

It seems difficult for the company to drag itself out of this deep hole. it raises a broader question: Does the decline of Byju’s mean the end of edtech as a startup sector?

The concept of edtech, which facilitates remote learning, is a comparatively recent phenomenon, and it took off during the pandemic when it plugged an obvious issue with lockdowns. Investors from all over the world saw it as a no-brainer and parents also came onboard enthusiastically.

The company (Think & Learn is the actual name of the company while Byju’s is the brand) was by far, the largest entity in the edtech space with dizzying valuations and its sequence of dazzling mergers and acquisitions. No other edtech company is even half as large.

Byju’s has experimented with multiple models from getting students (or rather, their parents) to sign on for pureplay online courses with a tablet thrown in, to running physical coaching centres, to online coaching with human assistance. 

These efforts were made at huge scales, and it has built a brand that is a household word with its sponsorship of football, and cricket and its advertising campaigns. None of this seems to have worked in the long run. There seem to have been losses in every segment of the business model. An analysis of the FY21 results suggested the single highest source of revenue was the tablet the company bundled into its online packages.

The firm’s valuations have fallen, from $22 bn to $250 million. That in itself, would make any VC or PE investor wary about the sector. The financials insofar as they are visible suggest that the business model has not worked – Byju’s was unable to turn a profit with either online or physical.

Why would any investor want to touch the edtech sector given this track record? Make no mistake, the education business is doing fine. The coaching centres of Kota are booming, for example. But the edtech variant could become a footnote in terms of being amongst the most short-lived business models on record.