About 15 years ago, a tutoring company in India did something completely unprecedented in those times—it booked one of the largest auditoriums in Bengaluru that could accommodate 2,000 students. The result: there was a full house of eager attendees for the crash course covering last-minute prep before attempting the JEE Mains and Karnataka engineering entrance.
The first crash course received “good feedback” and yet the educational institution’s founder Byju Raveendran, was “disturbed that evening”, Arjun Mohan recounted the memories in his book ‘Educating A Billion’.
“After acquisition cost, teacher’s pay, transportation, hall, admin, etc., we will hardly make any money. In fact, I think we will lose money. There is no business model here. Worst part is that our marketing was so successful and generated so many enquiries but we are not able to cater to all of them due to restricted seats,” Raveendran told Mohan that evening.
Mohan worked with Raveendran since the early years of eponymous Byju’s edtech in 2008 as a part-time consultant and later vice president of marketing before becoming the edtech’s chief business officer in 2019. He exited the firm a year later to join upGrad, another edtech, as CEO.
Fast forward to today, and life seems to have come a complete circle for Byju as it all boils down to one big question – ‘What is Byju’s business model, and is there any value left in the company once touted as India’s most valuable startup?’
The valuation of the edtech – which was India’s most valued start-up at $22 billion in June 2021 – seems to be on an unending slide ever since, with its most recent effort at raising more funds pegging the firm’s pre-money valuation at a paltry $25 million.
On January 29, the board of Think and Learn Pvt Ltd, the parent of Byju’s, announced a rights issue to raise $200 million from its existing investors. Through this, the company is looking at a post-money valuation of $220-250 million, which will still be a disastrous 99 per cent slump from its last funding round that valued the company north of $20 billion.
It is also to be noted that the rights issue is an offer to existing investors to buy more stakes in the company and is not an obligation.
However, it is key to understand what value the edtech’s business commands today, and where it derives such value, if it does indeed have any value left at all in its business.
Wherein Lies The True Value?
Valuating private companies is not as easy as doing it for companies listed on the stock markets, whose market value is straightforward.
“Private company valuation makes no sense anyway; at the end, every seller needs to have a buyer,” explained Dr Aniruddha Malpani, founder of Malpani Ventures, which funds startups that improve education and skills in India.
The value of a private company is usually calculated by looking at the potential growth the company is estimated to make over the next 12 to 24 months or more, in terms of various factors such as the number of users, revenue and margin, explained CA Lavish Veda, partner at IRA & Associates Chartered Accountants.
This valuation is often re-evaluated at each new round of funding or during a new acquisition made by the private company.
For instance, Byju’s valuation shot up from $1 billion in March 2018 to $22 billion in just about three years on the back of its expansion story across user base, geographies, and acquisitions. However, after its peak valuation in June 2021, the edtech firm witnessed several controversies that led to a continual markdown of its valuation by several of its high-profile investors, including a 95% cut by the world’s largest asset manager, BlackRock.
More recently, Byju’s was estimated to be worth only $700 million around a week ago after the board of the firm’s test-preparation business Aakash Institute approved the conversion into equity of the $300 million Ranjan Pai invested in 2023. Pai is the chairman of Manipal Education and Medical Group and one of the early backers of the edtech firm. Byju’s acquired Aakash in 2021 for $950 million.
Additionally, the valuation of Byju’s also hinges a lot on the prospective business the company has in the pipeline and the presence of a good product market fit.
Gazing Into A Hazy Crystal Ball
The future value the company can add, though, looks gloomy as it has also been witnessing a cash crunch, evidenced by the recent bout of layoffs and financials for the year 2022-23. The company’s losses for FY22 swelled to Rs 8,245 crore, an 80% jump from Rs 4,564 crore in the year-ago period.
While the edtech is yet to file its financials for FY23, the revenue for the period is expected to see a drop given the fact that its business has been adversely impacted by delayed audits and loss of support from its banking partners.
The edtech firm’s infamous aggressive sales tactic, which included Byju’s arranging loans for their customers by providing guarantees to the financing partner, has fallen flat since no Non-Banking Financial Company (NBFC) is giving loans to the customers of Byju’s anymore. The parent group’s chief financial officer, Nitin Golani, admitted this to MoneyControl on January 24, stating, “About 25-30 per cent of our business came from loans. However, no NBFC is giving such loans to our customers anymore because of our audit delays.”
Even before the embattled firm manages to raise the $200 million through rights issue and arrest the slide in its valuation, the firm needs to address the bigger question around the future role of its founder, Raveendran, amid recent developments.
The company’s top investors including Prosus Ventures and Peak XV (earlier Sequoia Capital India & SEA) signed a notice on Thursday asking for the removal of its founder and chief executive from the board, as per a report by the Mint.
However, Think & Learn Private Limited, the parent of Byju’s, clarified in a press note on Friday that the shareholder's agreement does not give them the right to vote on CEO or management change.
Insolvency Proceedings Looming Large
At this point, the fortunes of the embattled firm are taking a new turn with each passing day.
The future business prospects of Byju’s, on which the company’s valuation depends, remain uncertain on the back of multiple vendors dragging the firm to courts across the globe with pleas seeking the initiation of insolvency proceedings against the edtech for non-repayment of dues.
As recently as on Friday, one of its American subsidiaries, Byju’s Alpha, filed for bankruptcy proceedings in the court of Delaware, listing liabilities in the range of $1 billion to $10 billion as against assets ranging from $500 million to $1 billion, as per a report by ET.
Byju’s is also fighting multiple lawsuits raised by US lenders as well as the Board of Control for Cricket in India (BCCI) and French digital services vendor Teleperformance for non-payment of dues, which has reached the doors of the National Company Law Tribunal (NCLT).
This usually signals expediting an insolvency procedure, and hence the latest rights issue might just be “a face-saving exercise,” said Amit Gupta, founder of Factoryal, adding that even if the firm manages to raise the funds using the rights issue, the money might not be enough to pay off all its dues.
Other experts also agreed about the liquidity challenges the firm faces.
“People are looking at each development as a single thread, look at the overall. The firm is yet to deposit PF (provident fund) and TDS. Service providers have not been paid and subsidiaries have been sued in multiple places,” said Malpani.
Byju’s admitted that it is currently pumping out cash from its subsidiary Aakash Institute to fund its operations since Aakash is making excess money.
"One is generating cash that it does not require, and another is burning cash. Should I raise money from outside or use the cash that is lying around? Ultimately, Aakash is our company that we bought for Rs 7,000 crore,” Byju’s CFO Golani told MoneyControl.
How did Byju’s reach here?
From being the world’s most valuable ed-tech start-up at one point to fighting to survive another day, the firm took many steps which failed all its stakeholders—including employees, customers, vendors and investors—at various points, said Gupta.
Alongside the major layoffs the firm carried out in the last couple of years to cut costs, the current employees have complained about not getting their dues on time. Former employees have voiced out unpaid settlements and customers continue to request the firm on various social media platforms for their refunds that were promised but not yet processed.
“The company expanded too fast too soon and burnt cash as if there was no tomorrow. It also made acquisitions at atrocious valuations,” said Shriram Subramanian, founder and managing director of InGovern – a corporate governance research and advisory firm. And as history has proven repeatedly, the bigger they are, the harder they fall.