In late April, undercover Indian officials raided the Bengaluru offices of Byju’s, a prominent education-technology startup, seizing laptops, and raising concerns about possible foreign exchange violations. Thousands of miles away, in Dubai, Byju Raveendran, the founder, and CEO of the company, was in distress. He paced his condo, consumed cups of black coffee, and received calls from top investors. With a planned $1 billion equity fundraising from Middle Eastern investors still uncertain, Raveendran became emotional, defending his company during the calls, as reported by people who were present during those conversations.
Raveendran had been dealing with a crisis for months. Apart from the raid by India’s financial crime-fighting agency, Byju’s also faced challenges in filing its financial accounts on time. Furthermore, the company was accused by several US-based investors of concealing half a billion dollars, leading to lawsuits.
Recently, Prosus NV, one of Byju’s earliest investors, announced that it had relinquished its board seat due to concerns over poor governance and disregard for directors’ advice.
Both Byju’s and Raveendran denied any wrongdoing, but the situation they found themselves in sheds light on the difficulties Indian startups face. These firms often seek support from international investors due to limited domestic venture capital. However, last year, startup funding took a hit, reaching a four-year low by the first half of 2023.
The lack of easy access to global capital has resulted in increased scrutiny over corporate governance, putting at risk India’s ambition to compete with the US and China as a leading tech hub.
Raveendran’s journey, from a private tutor to leading a $22 billion company, captivated global investors, including major players like Sequoia Capital, Blackstone Inc., and Mark Zuckerberg’s foundation. During the pandemic, Byju’s dominated the ed-tech market in India.
However, as classrooms reopened, concerns about Byju’s financial situation arose, causing damage to the company’s reputation. Investors questioned Raveendran’s decisions, such as delaying the hiring of a chief financial officer and rapidly acquiring multiple companies worldwide. Many employees left or were terminated, board members resigned, and numerous teaching centers remained mostly empty.
Supporters of Raveendran believe that his mistakes were driven by enthusiasm and the inexperience of a founder who scaled the business too quickly. Critics, on the other hand, accuse him of acting recklessly by withholding financial information and neglecting rigorous financial auditing. In the Indian startup ecosystem, Byju’s is seen as a prominent example of a company that scaled rapidly during a boom but failed to prepare for a downturn.
Raveendran, as well as a spokesperson for Byju’s, declined to comment on the matter.
Byju’s origin story goes back to Raveendran’s upbringing in a village in Kerala, where he attended a local school, displaying an unconventional approach to learning. He eventually started coaching students and saw rapid success, which led to the establishment of Think and Learn Pvt Ltd., the parent company of Byju’s, in 2011. He co-founded the firm with Divya Gokulnath, whom he later married.
As technology spending increased during the late 2010s, investors showed strong support for Raveendran and Byju’s. The company digitized its business with a self-learning app, focusing primarily on math, science, and English for primary school students. With the surge in internet usage in India and significant investments, the company made strategic acquisitions, positioning itself well for the shift to online learning during the pandemic.
However, as of mid-2022, problems began to mount. The SPAC boom ended, and demand for online tutoring decreased. Raveendran’s decisions to raise more equity instead of focusing on cash conservation and profitability faced criticism, especially after some investors failed to fulfill their commitments to a funding round.
Moreover, Indian officials questioned the company’s inability to finalize its financial accounts for the fiscal year ending March 2021. India’s enforcement directorate sent summons to Byju’s officials in relation to money laundering and forex violations.
Amidst these challenges, Byju’s finally released audited statements, revealing significant losses, which alarmed investors. The firm’s valuation plummeted, and creditors began offloading their holdings at discounted rates. Lawsuits and disputes with lenders added to the company’s troubles.
In response, Byju’s is now working on restructuring the $1.2 billion loan and is seeking a $1 billion equity investment from Middle Eastern backers. The company is also relying on early Indian investors to address the cash crunch.
Despite the difficulties, some investors remain optimistic about Byju’s potential, citing its strong assets and extensive customer base. They believe that with the right financial moves and strategic support, the company can recover and thrive once again.
