When Byju The Teacher Faltered At The Altar Of Trust

In India, three classes of people are revered—a teacher, a lawyer, and a doctor, according to an investor in Think & Learn, the parent of Byju’s. This shareholder now accepts fait accompli of the investment almost getting wiped off.

Raveendran Byju, being a teacher, was successful in selling a dream to investors that brought in over $4 billion. The dreamer overshowed lack of financial acumen or managerial skill required to manage a company valued at $22 billion. And new and old investors failed to recognise this gap in the management they were entrusting their billions with. 

Byju’s was able to simplify coaching for students pursuing science, technology, engineering, and mathematics. And it took close to seven years to create the brand.

Beyond engineers from top institutes, India has a large resource pool of science and technology graduates who are available for STEM coaching.

The last-stage investors were not attracted to the domestic business but the dream of expanding STEM coaching across global markets.

The model was simple. 

STEM tuitions are available at $80-100 per hour in the developed markets. With the global economy emerging out of Covid-19, the model of online coaching was successfully proven across all geographies and school, colleges, and universities.

Byju's presented to all Investors that STEM coaching can be provided at $25 per hour in these markets, with tutors hired from India, China, and other Asian countries at $7 per hour.

On excel, this made perfect business sense for investors piling billions into edtech coming post the Covid-19 lockdowns. But the big question that arose was how to enroll students to STEM coaching classes run by an Indian company online?

A marketing blitz would have required substantial cash burn and long tenure to create and establish Byju’s brand in the developed markets. 

It took Byju’s seven odd years and brand marketing initiatives like IPL sponsorship to create a brand and market in India. A seven-year wait for penetration, especially in the U.S. and the European markets, appeared too long.

That is when Byju’s embarked on an overseas acquisition spree, buying a funnel that will eventually lead to creating a student base for STEM coaching. The aim was to engage with the target group of young students engaged by these companies.

In a span of 24 months, it bought companies like EPIC and Tangible Play, among others, involved in gaming to edtech to drive future growth and bring desired results in two to three years.

One of the biggest mistakes made by Byju was to borrow $1 billion at 6% interest without risk assessment. And the board comprising marquee investors looked away.

Then came the giant killer! Russia-Ukraine war was the beginning of the downfall of Byju’s. The supply-chain disruption and inflation concerns led to U.S. interest rate tightening, increasing the cost of debt. Byju's made technical defaults, drawing loan sharks after the company. While the edtech moved the money out before the sharks stepped in, that choked the liquidity for its U.S. acquisitions.

Byju's biggest mistake was lack of trust. Even though he hired lawyers to fight off the sharks, he doubted their ability to fight these suave investors. When he was supposed to be stabilising the business in India, he was away in the U.S. for months to manage lawyers and learn debt finance 101. His business deteriorated, regulatory scrutiny increased and U.S. operations finally shut down.

Byju’s posted a loss of over Rs 8,370 crore in FY22 and the financials will get worse in FY23 and FY24.