Once valued at $22 billion, high-flying edtech startup Byju's has seen a rapid decline over the past 15 months, with valuation drawdowns as severe as below $3 billion, according to long-time backer Prosus.
The valuation crash is a function of the multiple legal battles it faces, alongside a tricky path to profitability, ineffectual integration of its various acquisitions and poor corporate governance, which failed to scale as the Think and Learn Pvt.-operated startup expanded.
With a $1.2-billion Term Loan B fight with lenders, a National Company Law Tribunal insolvency petition filed by the Board of Control for Cricket in India, and Foreign Exchange Management Act violation allegations on an amount of Rs 9,300 crore, the company's legal troubles are overshadowed by a working capital crunch to solve, for which founder Byju Raveendran has reportedly pledged his homes.
To stay afloat, Byju's will "have to sell the multiple startups it has acquired all over the world, even if the sale price is lower than the acquisition price," according to Pushkar Singh, co-founder at Tremis Capital.
Byju's is already in talks to sell Epic! and Great Learning to raise funds to settle the $1.2 billion Term Loan B. Such term loans allow borrowers to defer repayment of a large portion of the loan, but come at a higher cost.
"We are working with our partners, including Great Learning management and TLB lenders, for a potential divestment at optimal value. This will allow Great Learning’s future growth as an independent company," a Byju's spokesperson had told BQ Prime then.
"That should free up some cash. It also needs to reach an arrangement with its lenders and refinance existing loans. Its arrogant and unethical attitude has angered the industry," Singh said.
In the medium term, Byju's will have to cut salary and infrastructure costs, Singh said. This is already underway with the newly returned Chief Executive Officer Arjun Mohan at the helm.
"I expect another two rounds of layoffs over the next few months. If I were the CEO, I would do one large layoff (30-40% of the staff) and get done with it because multiple layoffs destroy the employee morale," he said.
A sudden increase in churn rate, hard-core sales and marketing tactics have nosedived the company's valuation dramatically, according to Somdutta Singh, an angel investor, limited partner at several funds and the founder of Assiduus Global Inc., an e-commerce solutions firm.
"Additionally, there is a lot of competition from rivals in the industry... What happened at Byju's is a very natural process, it caused this financial predicament with its own cash flow decline, following the reopening of schools after the pandemic," she said.
The founder needs to take a backseat and a professional management has to take over, because education continues to be a growing industry in India, according to Tremis Capital's Singh.
"Byju's can turn around from here if a professional management instills ethics in the company. They can’t fudge numbers, that’s for sure. The board must start with cleaning up the mess rather than kicking the can down the road," he said.
There are some factors that do work in Byju's favour such as its massive market presence and brand recognition, that with time will get the recall value it deserves, Assiduus Global's Singh said. "Investors are probably eyeing the potential in the company's ability to pivot, rebrand, and emerge stronger. Investors might want to pump in money to fuel a turnaround, not just patch up the loopholes," she said.
Byju's investors that came in at a $15-20 billion valuation will have to take a haircut in their investment, Tremis Capital's Singh said. "They will lose money. But with Ranjan Pai involved, the company will raise fresh capital from global funds. India growth story remains strong, and there’s a lot of money in the world looking for good businesses. Byju's will have to demonstrate its willingness to reform," he said.
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