Poor management of funds, overbearing promises and illtreating customers drew the curtains on Lido
Alarm bells went off in India's edtech space and the overall start-up sector this February when Sahil Sheth, founder and CEO of Lido Learning, announced that the edtech was closing down due to a fund crunch. The 1,000 to 1,200 employees attending the virtual town hall were shocked beyond belief.
They were even more stunned when Sheth asked them to look for jobs assuring that their salaries would be paid within 90 days. An email announcing the same was also received by tutors requesting them to be patient.
Soon, social media was filled with posts by employees and parents—some of whom also planned to take legal action against the company—about how the edtech had cheated them. The three-year-old edtech start-up, once touted as BYJU's most formidable challenger, bit the dust before it could even spread its wings.
The big question on everyone's mind today after Lido filed for bankruptcy with the National Company Law Tribunal in Mumbai is how such a promising company came to such a brutal end? This is especially since it was backed by industry veterans, including upGrad founder Ronnie Screwvala, Paytm founder Vijay Shekhar Sharma, Myntra and Cultfit founder Mukesh Bansal, People Group's Anupam Mittal and Mensa Brands founder Ananth Narayanan.
So, what caused its downfall? While the reasons are many, one of them could be traced to its business model.
Lido's model of conducting live online tuitions to students from classes K to 9 in maths, science, English, and coding in groups of six had made it popular among students during the pandemic. However, after Covid receded and schools reopened, this model lost its significance.
Today, almost seven months after firing its entire staff as Lido stares down the abyss of insolvency, its status quo underlined the fact that sacking people does not guarantee a company's longevity. This development signals the beginning of an era where other start-ups that had laid off staffers could find their backs to the wall.
Another thing that led to Lido's demise was a lack of funds. This is questionable, especially because the edtech had raised $10 million just six months before announcing closing its operations this February, pushing its total fundraise to $30 million. However, upon digging deeper, it appears that Lido was surviving from one funding round to the other.
There were several indicators of the start-up's failing health. This included refunding customers, inability to pay Provident Fund of employees and not meeting the tutor's minimum guaranteed pay (MGP) over the last few quarters.
Lido, clearly, didn't budget for the promises it made–to its employees, tutors and customers. Its failure to make refunds to parents who didn't wish to continue with courses after the trial period earned it backlash across social media.
Several angry parents even formed groups to file litigations in the consumer forum. Few had even taken loans to fund the classes.
Amid its already tarnished reputation and fund crunch, a CNBC reported stated that in mid-2021, Lido started offering MGP of Rs 15,000 per month to its tutors, thereby only adding to its overheads. Experts called this an imprudent move, mainly due to uncertainties surrounding the reopening of schools after the second Covid wave. Apparently, the company had also vacated one of its premises in Noida without paying rent for a few months.
Since February, when Lido announced shutting down its operations, talks about several edtechs acquiring the start-up started doing the rounds. BYJU's, Vedantu, Unacademy and Reliance were the frontrunners in acquiring Lido.
However, none of the deals materialised. As per media reports, even till June, Lido was in active talks with Reliance Industries for acquisition. But the latter probably chose to steer clear because of the edtech's tattered image.
The bankruptcy announcement has dashed all hopes that the start-up's employees, tutors and customers might receive their financial dues. However, the key question now arises whether the Indian start-up ecosystem can prevent the creation of similar instances. Uday, another K12-edtech shut shop, laid off its workforce of 100-120 people in June. Do we hear more alarm bells?
2022 has been particularly hard for edtech companies as global markets show no signs of respite, leading to further dampening of funding sentiments. Vedantu and Unacademy, two prominent edtechs catering to the K12 segment, have resorted to a series of layoffs to reserve cash and increase their runway.
Vedantu, which sacked 624 employees in May, laid off another 100 employees this month. Unacademy, too, laid off about 1,000 employees this year, and in May, its CEO Gaurav Munjal warned its staff about tough times ahead.
And that is not the end of the troubles for the edtech sector.
The world's most valued edtech, BYJU's, has been grappling with its own share of problems. It missed deadlines to file its audited financial results for the year ending March 2021 by nearly 18 months. In July, the unicorn had said it would file the results within ten days but failed to do so.
BYJU's slip-ups prompted Congress MP Karti Chidambaram to call for a probe into its finances . This adds to the pile of issues the edtech is currently struggling with. It claimed it had raised $800 million in a round led by founder Byju Raveendran and that Sumeru Ventures and Oxshott would provide $250 million during this funding round. However, it is unclear whether the venture capitalists honoured their commitment.
Moreover, the company spent $2.5 billion acquiring smaller firms in the past two years. Last year, it acquired Blackstone-backed Aakash Educational Services at $1 billion. However, BYJU's is yet to pay Blackstone about $180 million for the deal.
Is this a signal of another edtech going bust in the foreseeable future?