"We dodged a bullet,” the India CEO of one of the world’s largest venture capital firms told me nearly a year ago when I asked him why his company had not invested in the big edtech decacorn out of India—Byju’s. The edtech firm was the toast of the start-up ecosystem at the time, and Byju Raveendran, the gym-going teacher-turned-star entrepreneur, was being wooed by every big investor in town. But this CEO said blurry accounting and potential governance issues had led him to stay away. Today, the same CEO has a smug look on his face, which says “I told you so!” Buffeted by problems from all sides, Think and Learn—the corporate name Byju’s goes by—is battling a sharp valuation markdown from one of its investors, Prosus, which has reduced the firm’s valuation from the earlier $22 billion (which made it the world’s most valued edtech firm) to just $5.1 billion now. Add to this a funds crunch, accusations of aggressive selling of courses, governance lapses, severely delayed results, top-level exits, court cases against lenders and promoters of acquired companies, and it is clear that Byju’s is facing the biggest crisis since it stormed into the edtech space as a trendsetter in 2011. Key investors like Prosus and Peak XV Partners (formerly Sequoia) have stepped down from its board citing a lack of governance, and the company desperately needs funds—estimated at around $1.5 billion—to address liquidity issues.
In our cover story, Binu Paul, Bhavya Kaushal and Krishna Gopalan examine the litany of problems the firm faces and what investors and the entrepreneurial ecosystem feel Raveendran should do to get out of the mess. The fundraising is vital for the very survival of the company, and it needs to sell its assets if funds are hard to come by. Byju’s also needs to untangle the mess around Aakash Educational Services, the sole profitable acquisition where it is fighting its erstwhile owners. Reducing costs and enhancing cash flows need to be top priority to nurse the company back to health. But the one thing investors need the most from Raveendran is good corporate governance. It is clear that despite its best efforts, Byju’s will not be able to raise funds even close to its $22-billion valuation. But funds need to come in, and fast. However, as an analyst tells BT, convincing investors to come in will not be easy.
Raveendran and his wife and Co-founder Divya Gokulnath will need to do their best to get their firm out of the rut. The crisis also has lessons for the start-up ecosystem. Buying revenues through buyouts to ramp up valuations does not work. Besides, the core of the business must be intact, with a sharp focus on governance and transparency with investors. And as ventures scale up aggressively, they must adopt corporate structures with a top deck of managers and independent directors on the board. These, as Byju’s and other crisis-ridden ventures are realising, are non-negotiable. It is time for Byju’s to think. And learn.
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