Once one of the most highly-valued edtech start-ups globally and widely sought after by investors during the Covid-19 pandemic, Byju's has experienced a considerable decline in growth following operational and financial issues in recent months. Experts consider this decline a corrective measure of the exuberance in Indian start-ups.
Shriram Subramanian, who heads an independent corporate governance research and advisory firm, commented that Byju's has achieved a remarkable growth speed.
Established in 2011, Byju's introduced its educational app in 2015, and by 2018 had captured 15 million subscribers. This led to the edtech firm achieving unicorn status (valued at $1bn) and much celebratory attention.
It saw a growth surge during the Covid-19 pandemic as students resorted to online classes during lockdowns. Nevertheless, 2021 brought a loss of $327m, being 17 times more than that of the preceding year.
Since then, the edtech giant's value has declined significantly. Last year, it was valued at $22bn (£17.28bn) but Prosus NV, its biggest investor and shareholder, has since lowered this to $5.1bn.
The BBC's queries were not answered by the company.
Mr Subramanian declared that after the pandemic was over and children went back to school, a decline was expected. Nonetheless, Byju's continued to prosper and investors continued to invest in it, although they did not acknowledge the possibility of a downturn.
Aniruddha Malpani, an angel investor who has made vocal criticisms about Byju's business model, declares that the company had "paper fortunes".
He pointed out that there was a huge discrepancy between what something was worth and what it was appraised at.
Due to rapid expansion during the pandemic, Byju's has carried out multiple purchases in 2021, amounting to a total of $2bn, which included the acquisitions of edtech start-ups and companies such as WhiteHat Jr, Aakash, Toppr, Epic, and Great Learning.
It quickly outstripped Paytm, India's digital payments platform, to become the country's most highly valued start-up.
Byju's allocated hundreds of millions of dollars to its advertising, enlisting Bollywood movie star Shah Rukh Khan and footballer Lionel Messi to be its brand ambassadors. Furthermore, it became the main sponsor of India's national cricket team and an official sponsor of the 2022 FIFA World Cup.
Lately, the company has been met with grievances from parents who allege they have not been given what they paid for- that they have been talked into acquiring courses that were beyond their budget and afterwards have not been provided with the services they were promised. Furthermore, some state that the company has been taking advantage of its customers with manipulative strategies.
Ex-personnel voiced grievances about the high-stress sales environment and unimaginable purpose. The organization has dismissed countless personnel in the preceding twelve months for expenditure reduction.
Byju's has rejected the claims put forward by both parents and ex-employees. There have also been examinations from the administration.
In April, the Bengaluru office of the firm was investigated by Indian authorities concerning potential abuses of foreign exchange statutes. The business rejected any wrongdoing and reassured its staff that it had acted in accordance with the laws.
In May, creditors of the company initiated legal action against it in an American court, alleging that payments were not made and conditions of the loan contract violated - including a backlog of financial documents for many months. The financiers further declared that money had been diverted through Alpha, a US-based subsidiary of Byju's, a contention denied by the latter.
In June, Byju's reportedly failed to make an interest payment of approximately $40m and subsequently took legal action against the lenders, accusing them of harassment.
The organization also initiated a new wave of dismissals, letting go of approximately a thousand staff members. Its auditors caused even more difficulties for the company.
Deloitte Haskins and Sells Llp stepped down as the firm's auditors citing the late submission of Byju's financial statements. The auditors declared this had a detrimental effect on their capacity to evaluate the company's financial records.
Shortly thereafter, it was announced that three members of the board had stepped down, leaving only the CEO Byju Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran, as the remaining board members.
It is said that the start-up is in negotiations to rearrange its financial obligations.
At a shareholders' meeting this week, there were reportedly calls for the CEO's resignation, however, two investors at the company have disputed these allegations.
K Ganesh, a serial entrepreneur and angel investor who founded one of India's largest online grocers, BigBasket, commented that Byju's did not meet the standard that was anticipated of a company its size.
He claimed that the lateness of the submission of the financial documents was "not satisfactory and intolerable".
Mr Ganesh noted that those sectors which saw growth due to the pandemic and experienced rapid expansion are now encountering difficulties resulting from a quicker-than-anticipated return to pre-pandemic conditions. He went on to state that this is applicable to all organisations in the education technology sector.
Experts contend that the potential of the sector had been overrated during the pandemic.
Dr. Malpani stresses that technology alone cannot be effective; instead, it should be combined with a secure environment in which children are supervised by adults and have the opportunity for peer-to-peer instruction.
He states that Byju's was basically marketing hardware, like its tablets, with instructional material that could be obtained on the internet without cost.
Mr Ganesh commented that these start-ups were valued at a "highly inflated" rate during the pandemic and now they are being priced at a "reasonable" value.
He noted that one of the elements contributing to Byju's present circumstance is the "harmful" structure of boards of venture capital-backed businesses.
Mr Ganesh explained that without just the managers, founders and investors on board -- all of whom have the duty to look out for their own interests -- there is nobody to look after the company's own needs. This is unlike a public listed company, which, by following regulatory rules, has a set of independent directors on board and demands that an audit committee is run by an independent director.
Mr Ganesh along with other specialists have strongly suggested that companies that have achieved a specific plateau should function as if they are publicly traded organizations..
It is reported that, at the shareholders' meeting, the organization resolved to create an advisory committee of independent directors to provide guidance and counsel to the CEO on the makeup of the board and the governance framework.
Ganesh and Shriram declared that the firm could still turn its fortunes around if it accepted its mistakes and took quick action on all fronts.
Dr Malpani does not think that Byju's has demonstrated its will to do this.
Mr Shriram recommends that they should safeguard as much money as they can in order to prolong their time in operation and significantly reduce expenditures, not merely through job cuts. Additionally, he suggests selling off some businesses in order to garner capital.
Byju's has established a schedule that will have its 2022 audit finished by the end of September and its 2023 audit concluded at the end of December.
It is anticipated that the current state of Byju's will be advantageous to India's start-up ecosystem in the near future.
Mr Ganesh commented that matters like due diligence, founders' rights, the necessity for an internal auditor, independent board members, and terms and conditions of corporate governance, which were ignored before, will become more stringent.
Mr Shriram noted that India has good corporate governance laws, and called for investors and other stakeholders to ask even more of Byju's.
It is said that investors are accustomed to experiencing rises and decreases in the market and don't remember these decreases for long.
According to Dr Malpani, there will be a similar event taking place two years from now.
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