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The Fall of Byju’s and Byju Raveendran
We have seen that
Byju’s and its CEO and founder Byju Raveendran are occupying centre stage for
all the wrong reasons. A lot of water has flowed down the drain since the
edtech major occupied top drawer ranking globally among its leading
competitors.
Introduction
Established in 2011, Byju’s introduced its learning app in 2015. The edtech company achieved unicorn status (a valuation of $1 B) with 15 M subscribers by 2018, gathering huge attention.
With the Covid-19 pandemic, Byju’s experienced considerable growth as students increasingly accepted online learning as the new normal during lockdowns. However, in 2021, the company incurred a loss of $327 M. Byju’s also witnessed huge layoffs in 2022 and 2023.
During May 2023, Byju’s faced a lawsuit filed by its lenders in a US court. The lenders claimed that Byju’s had missed payments and broken the loan agreement’s clauses, which prohibited material delays in the publication of financial results. The company was also accused by the lenders of misappropriating money through its US-based subsidiary, Alpha. Byju’s, however, refuted these accusations made against it.
On June 22, 2023, Deloitte tendered their resignation as statutory auditors of Byju’s to the Board of Directors, effective immediately. Despite the appointment of BDO as their new auditors, skepticism persists regarding the future of Byju’s.
Inspection of Byju’s ordered by Government amid financial and corporate governance concerns
The inspection of Think & Learn Pvt. Ltd., which operates under the brand Byju’s, will be carried out by the Ministry of Corporate Affairs (MCA).
In the recent past, Byju’s has been battling with multiple negative issues, including most importantly misselling courses, the delay in submitting financial statements, resignation of its statutory auditor in June 2023 and its corporate governance practices.
G. V. Ravishankar of Peak XV Partners (Sequoia Capital India), Russel Dreisenstock of Prosus, and Vivian Wu of Chan Zuckerberg Initiative also resigned from Byju’s board.
Earlier MCA asked the Regional Director at Hyderabad to conduct an inspection of Byju’s, registered in Bengaluru. Further courses of action will be decided after receiving the inspection report.
Think & Learn Pvt. Ltd. was incorporated on 30th November 2011. The last Annual General Meeting of the company was held on 19th September 2022.
Byju’s may face a probe as MCA (Ministry of
Corporate Affairs) wants to involve SFIO (Serious Fraud Reporting Office) for the
resignation of Deloitte and Delayed Financials.
MCA has checked out the legalities and procedures involved in referring the matter to SFIO.
MCA wants to engage SFIO to investigate the resignation of its auditor,
Deloitte, and the delayed financial reporting by its parent company, Think
& Learn Private Limited.
Deloitte was appointed statutory auditor for a five-year tenure till March 2025 (2024-25). Following the exit of Deloitte, Byju's appointed BDO (MSKA & Associates – a member firm of BDO International in India) as its statutory auditors for the year commencing from 2021-22 for the next five years.
SFIO, a multi-disciplinary organisation under MCA, includes in its hierarchy experts in accountancy, forensic auditing, banking, law, information technology, investigation, company law, capital markets, and taxation domains.
In June 2023, Deloitte Haskins & Sells officially resigned as Byju’s and Aakash Educational Services Limited (Aakash Institute) (AESL) ’s statutory auditors, resulting from the delay in the company filing its 2021-22 financial statements. They were scheduled to be presented to shareholders during an annual general meeting within September 2022.
The government's regulatory response to the compliance failures was influenced by the absence of any mention of non-cooperation by the management, financial irregularities, or fraud in Deloitte's resignation letter to the company's board.
Moreover, Deloitte thanked the management and staff of Think & Learn Private Limited for the cooperation extended to them during their tenure as auditors of the company.
SFIO has to investigate Byju’s affairs in several situations. These include
when the Registrar or inspector under section 208 of the Companies Act, 2013
submits a report, when a company passes a special resolution indicating the
necessity of an investigation, when it is deemed to be in the public interest,
or when a department of the Central Government or a State Government requests
an investigation.
This comes a few days after Byju’s proposed the establishment of a Board Advisory Committee (BAC) to guide the CEO, regarding Board composition and the governance structure of the company, during an extraordinary general meeting (EGM).
During the EGM, Byju’s CFO Ajay Goel reiterated the ongoing engagement with newly-appointed auditors BDO for the audit process. The company aims to meet the previously communicated timelines, with the 2021-22 audit targeted for the end of September 2023, and the 2022-23 audit expected to finish by the end of December 2023.
The crisis at Byju’s forces top India VC Firm Blume Ventures to revise strategy
The corporate governance blunders at Byju’s are sending outrage through India’s developing startup economy.
Blume Ventures, a big venture capital firm managing $625 M in assets is becoming more cautious in its investment strategy, alarmed by crises in a homegrown startup and ed-tech leader Byju’s.
It is cutting back on thoughtless investments as it wants portfolio companies to shift focus to profitability, co-founder Karthik Reddy said in an interview. A third of its portfolio, including e-commerce and mobility firms, has turned shaky over the past year.
Byju’s, once India’s most valuable upstart is in turmoil after missing a deadline on financial statements, skipping payments on a $1.2 B loan and losing its auditor and some of its board members.
The chaos at Byju's has forced the entire ecosystem to think about what could be wrong in every portfolio company? Blume Ventures backs Byju’s rival Unacademy, and a number of startups including delivery firm Dunzo and gadget marketplace Cashify. You get these questions from your investors as well.
Byju’s was valued at $22 B in late 2022. In June 2023, one of its main investors, Prosus NV, slashed the value of its stake in a move that pegged Byju’s total valuation at about $5.1 B.
The missteps in governance resulted from a venture capital boom that lasted through 2021. Funding has dried up since as slowing economies, rising interest rates and higher levels of inflation prompted venture investors to pull back.
Indian startups raised $5.4 B in the first half of 2023, a decline of more than 70% from the same period in 2022. Already in 2022, funding dropped to about $27 B from $43 B in 2021.
There is very little early-stage investing happening right now. Blume, based in Mumbai, typically provides seed funding to upstarts.
That cautiousness dovetails with several small startups shutting down amid the funding winter. Investors have become more prudent and firms such as Blume are wary of writing a cheque for just another e-commerce, marketplace or influencer marketing idea.
Fallen Star Byju Raveendran Is No Longer A Billionaire
Three years after he joined the billionaires’ club in 2020, Indian edtech entrepreneur Byju Raveendran is out of that elite ranking for a series of blunders.
Prosus, formerly Naspers, had written down its 9.6% stake in Byju’s to $493 M (as on 31st March 31, 2023). The write off values Byju’s at $5.1 B, a steep 77% discount to last year’s peak valuation of $22 B.
Consequently, Raveendran’s 18% stake is now valued at under $1 B, but after accounting for the loans he took last year to invest in Byju’s, his personal net worth is estimated at $475 M.
That is a far cry from his net worth of $1.8 B in 2020, when he debuted on Forbes’ World Billionaires list and his firm was valued at $10 B. In two years, his fortune had doubled to $3.6 B — until things began to be destroyed.
Byju’s parent, Think & Learn, founded by Raveendran, a former math tutor, went on a fundraising rampage in 2020-21, raising nearly $4.2 B from a countless number of investors including UBS and Abu Dhabi’s sovereign fund.
It used a major part of that money to fund a buying binge across India, Asia and the U.S. that included the $950 M acquisition of Indian test-prep provider Aakash Educational Services Limited (Aakash Institute) and $600 M for Singapore’s Great Learning, a higher education and professional training firm.
The sheer pace of growth took its toll. Byju’s grew too quickly, without proper checks and balances. Byju’s did not have a CFO (Chief Financial Officer) from December 2021 to April 2023 though it had Vice Presidents of Finance for its different divisions. But still it is yet to file its financial results for the year ended March 31, 2022.
Results were last published in September 2022 for the fiscal year ended March 31, 2021 — after a 12-month delay. Byju’s reported a loss of Rs. 45.6 B ($573 M) — up from Rs. 3.1 B the previous year. Revenue fell 3% to Rs. 24.3 B in the same period.
Raveendran pacified investors by participating in Byju’s funding round in March 2022, investing $400 M at the $22 B valuation. The funding rounds that were announced with much flamboyance did not materialise in funding as investors such as Sumeru Ventures and Vitruvian Partners backed out.
Raveendran said “I’m going all in” during the Forbes Global CEO conference in September 2022.
I've been doing this for 15 years, and the aim is to do this for another 30 years. The world needs 10 more companies like ours. If you do good, you’ll end up doing well.
That did not cut much ice. BlackRock slashed Byju’s valuation to $11.5 B in October 2022 and further to $8.4 B in May 2023. Prosus, a leading investor in edtech globally that had funded Byju’s to the tune of $536 M since 2018, was less generous.
In September 2022, Prosus, which has a dozen edtech investments, including San Francisco-based up-skilling platform Udemy and New York-based social learning community Brainly, marked down the value of its investment in Byju’s to $578M, valuing the firm at $6 B.
Prosus noted in its 2022 annual report that in September 2022, the group lost significant influence in Byju’s over the financial and operating policies of the entity.
Byju’s shook from one crisis to another, the most recent of which was the resignation of its statutory auditor Deloitte in June 2023 over the inordinate delays in preparing financial accounts. Three board members also quit.
Now, Byju’s is in the process of reconstituting the board by bringing in a few independent directors. It is also looking to set up a board of advisors who can guide the founders. At a recent executive board meeting with shareholders Raveendran admitted to making mistakes but asserted that he is focused on course correction.
Byju’s also announced in June 2023 that it is planning an IPO for Aakash Educational Services Limited by mid-2024.
Only time will say what will happen after this. Until then we have to wait.
To be continued
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