SCAM 2023 | Lessons from the Stunning Rise & Dramatic Collapse of Byju's | Akash Banerjee

Summary

Byju's, once the pride of India's edtech industry and a darling of investors, now faces a dramatic downfall. From a valuation of $22 billion to a staggering 85% drop, the company struggles with financial woes, including inability to pay salaries and mounting debts. The rapid expansion and acquisition spree, coupled with a deteriorating market and questionable sales tactics, led to its current predicament. The story serves as a cautionary tale for startups and investors alike, emphasizing the importance of sustainable business models and ethical practices.

Takeaways

• 📈 Byju's was once highly valued by investors, with a peak valuation of 22 billion dollars and high-profile brand ambassadors like Shah Rukh Khan and Messi.
• 🏆 The company was a prominent figure in the Indian startup ecosystem and edtech industry, known for its innovative approach to education and widespread recognition.
• 💼 Byju's faced financial difficulties, with the founder, Byju Ravindran, taking a loan of 12 million dollars to pay November salaries, indicating a significant downturn in the company's fortunes.
• 📉 The company's valuation plummeted to 3 billion dollars, and it faced accusations of violating the Foreign Exchange Management Act (FEMA).
• 🚀 Byju's rapid growth resembled a 'firecracker rocket', highlighting the dangers of aggressive expansion without a solid business model.
• 📚 Despite being an edtech company, Byju's downfall was not due to outdated technology or a lack of student interest, but rather internal issues and unsustainable practices.
• 💡 The story of Byju's serves as a cautionary tale for startups and investors alike, emphasizing the importance of due diligence and questioning business strategies.
• 🛑 The company's aggressive marketing tactics and predatory sales strategies eventually backfired, leading to public backlash and a damaged reputation.
• 🌐 The COVID-19 pandemic initially boosted edtech companies like Byju's, but the subsequent return to in-person learning and a shift in investor preferences exposed the temporary nature of this growth.
• 💸 Financial mismanagement, including risky acquisitions and a lack of transparency, contributed to Byju's financial collapse.
• 🏛️ Byju's is now grappling with insolvency proceedings, legal disputes, and a tarnished image, underscoring the consequences of failing to adapt and maintain ethical business practices.

Q & A

What was the peak valuation of Byju's, and how much did it decrease to?

Byju's peak valuation reached 22 billion dollars, but it later decreased to 3 billion dollars.

What significant event in Byju's history led to a shift in its business model to digital education?

In 2012, Byju's founder, Byju Ravindran, met Ranjan Pai of Manipal Group who invested 50 crores in Byju's on the condition that the company had to go digital.

How did Byju's initially attract students to its CAT coaching classes?

Byju's initially attracted students by offering a free first class, and if students liked it, they had to pay Rs. 750 per session for subsequent classes.

What was the impact of the COVID-19 pandemic on the edtech industry, and how did Byju's respond?

The COVID-19 pandemic created a huge opportunity for edtech companies as schools were closed, and education was affected by the lockdown. Byju's responded by making their platform free access for students and increasing their marketing efforts.

What are some of the allegations against Byju's regarding its sales tactics?

Allegations against Byju's sales tactics include pressuring parents to take out loans, providing false discounts, lying about return windows, and using scare tactics to convince parents to sign up for courses.

Why did Byju's take a $1.2 billion term loan B from a US lender in November 2021?

Byju's took the $1.2 billion term loan B to raise more funds for acquisitions and to run the companies they had bought, without diluting the founders' equity.

What is the significance of the book 'The Learning Trap: How Byju's took Indian edtech for a ride' by Pradeep Saha?

The book by Pradeep Saha, co-founder of The Morning Context, is significant as it has been warning about the collapse of Byju's for years, highlighting the company's flawed business model and practices.

How did Byju's attempt to change the traditional Indian education system?

Byju's attempted to change the traditional Indian education system by focusing on learning fundamental concepts rather than just scoring marks, using a mix of text, video, and animation to explain concepts through everyday examples.

What was the role of Shah Rukh Khan and Lionel Messi in Byju's brand strategy?

Shah Rukh Khan and Lionel Messi served as brand ambassadors for Byju's, helping to increase the company's visibility and prestige.

What are the consequences of Byju's financial struggles for its employees and the company's operations?

The financial struggles of Byju's have led to the company being unable to pay salaries, PFs, TDSs, and utility bills, as well as firing 5000 employees since March 2022.

What regulatory action has been taken against Byju's in relation to its financial issues?

In April 2023, the government issued a probe against Byju's under the Foreign Exchange Management Act, and the Enforcement Directorate accused Byju's of violations amounting to 9000 crore.