In 2021 Byjus was the world’s most valued edtech startup valued at $22 billion in March 2022 after raising $800 million in a funding round…
Why Did Byju’s Fail? Top 5 Reasons
In 2021 Byjus was the world’s most valued edtech startup valued at $22 billion in March 2022 after raising $800 million in a funding round. At that time Byjus became the most valued edtech startup in the world.
In 2022, Byju’s became the only startup from Asia to sign football legend Lionel Messi as its global brand ambassador for the social initiative “Education For All” to promote the importance of access to education.
But what went wrong with the biggest giant in the edtech industry, from being the most valued startup to facing issues like unpaid employee salaries, overdue advertisement costs (BCCI) and eventually filing for bankruptcy?
Failed Journey of Byju’s
Let us start understanding the failure of Byju’s with the help of your school experience. Suppose, you are sitting in your 10th class lecture and your teacher is explaining an important topic.
Suddenly, the teacher asks, “Any questions? Is everyone clear on this?” While everyone else nods in understanding, you are left feeling lost and do not know what is going on.
Does this sound familiar? If you were a student, it probably happened to you at least once.
Students learn at different paces and teachers can not always ensure that all of them are in the loop and on the same page.
If we look at this closely then it is a serious problem and to solve this, different creative, innovative thinkers came with unique solution ideas and one of them was Byju Raveendran.
He founded “Byju’s” in 2011, though he had been teaching math to students since 2006. Initially, his only focus was to offer online video-based learning for only K-12 students and those preparing for competitive exams.
In August 2015, Byju’s launched its mobile app & by 2018 15 million users registered on it including 900,000 paid subscribers.
In the same year, Byju’s became India’s first edtech unicorn.
Now at the time of writing, Byju’s valuation is zero which was once the biggest edtech startups in the world.
Top 5 Reason Why Byju’s Fail
The Line of Acquisitions- Biggest Reasons Behind the Byju's Failure
Byju’s went on a journey of acquiring companies which collectively resulted in a debt load of $1.2 billion.
Between 2017 and 2021, Byju’s acquired 10 companies, six of which were not generating any revenue.
Byju’s raised around $5 billion by diluting equity and taking on some debt from multiple global investors which was later on used to acquire these companies.
List of top Companies Acquired by Byjus-
- WhiteHat Jr – Acquired in August 2020 for $300 million (Basically a coding platform for kids)
- Aakash Educational Services – Acquired in April 2021 for nearly $1 billion (Test Preparation Service Provider)
- Osmo – Acquired in January 2019 for $120 million (US-based educational gaming company for children)
- Epic! – Acquired in July 2021 for $500 million (Digital reading platform for kids aged 12 and under)
- Great Learning – Acquired in July 2021 for $600 million (Platform for online higher education and professional courses)
- Toppr – Acquired in July 2021 (Online learning app for K-12 students)
- Scholr – Acquired in February 2020 (AI-based learning)
- TutorVista and Edurite – Acquired in July 2017 from Pearson, TutorVista offers online tutoring services, and Edurite provides educational content and solutions.
- HashLearn – Acquired in July 2020, (Platform for Instant Doubt solving by connecting with tutors)
- LabInApp – Acquired in September 2020 ( science learning using 3D simulations)
According to multiple reports all these acquisitions cost Byju’s around $2.5 billion dollars. Even their most notable deal (Aakash acquisition) faced controversy due to the postponement of the final payment to Akash’s investor, Blackstone (June 2022 to September 23 2022).
Why would any edtech company acquire these businesses? Obviously, to make profits, eliminate competition and to create its monopoly in the industry.
However, in Byju’s case, the outcome was the opposite as expected.
Their rapid and blind expansion into different categories of online education created a challenge for themselves as it was not obvious to consistently provide quality education across all the acquired companies.
Blind Advertising Expense- Second Top Reason Behind Byju's Downfall
Aggressively advertising and financial mismanagement was the second biggest reason behind Byju’s downfall.
Initially, their aggressive advertisement gave them results as most of the students purchased their courses. Seeing this growth, they entered foreign market without analyzing the demand and competition.
They were overspending on their sponsorship and celebrity endorsements.
This led them to 3 major problems
- High operational expenditures exhausting their funds at a rapid rate
- Unable to fund important R&D projects
- Regularly dealing with losses
In 2016, they reported a loss of ₹49 crores which increased to ₹249 crores in 2020 and by the year 2021 they reported a loss of ₹4,588 crores.
Parents Allegations - A Direct Threat to Byjus’s Trust & Reputation
Search ‘parents allegations on Byju’s’ on Google and you will be served by hundreds of articles and the prime reason behind this was the salesperson and marketing tactics of Byju’s.
According to multiple reports, Byjus’s salespersons were trying to sell Byju’s courses at every possible location. They were asking parents to buy their course at malls, schools, bus stands, metro stations even some parents reported they were asked to buy their course at temples.
Parents of students have reported several issues with Byju’s, including:
- False and aggressive sales tactics
- Concerns over the privacy of students’ data
- Misleading claims about course quality & overcharging students
- Regular calls to parents and students to buy courses, even if they told they are not interested on previous calls.
As a reputed edtech company, these types of allegations hurted the company’s image as reported in the press and newspapers. Students will not trust the brand again no matter how much they are used to their courses.
As a result, their long term unhappy users impacted Byju’s revenue, profits and user retention rates. They were unable to find other investors, influential people or partners.
The edtech industry was already very competitive and the damage to Byjus brand reputation worked as a final nail in the coffin.
Returning of Students To School - The Hidden Reason Why Byju's Fail
Pandemic was a favorable time for the edtech sector to prosper. During lockdown Byjus added 7.5 million new users during the pandemic.
When the lockdown ended, students suddenly chose to leave online classes to restart their schools. Here Byju’s revenue declined by 38% from 2020 to 2021.
Despite these losses Byjus went on to acquire other edtech companies like in this meantime they acquired White Hat Junior ($300 million) and Akash ($950 million). The core issue was that none of these companies were profitable. Byju’s believed that their huge network and marketing strategies would make them profitable but it turned out to be the opposite.
The Unwanted Loan - Catalyst for Byju's Downfall
In 2021, the United States was offering loans at near-zero interest rates for startups and businesses which was seen as a very attractive opportunity for startup founders.
If you do not know the term near-zero interest loan then here is a short note:
A Term Loan B is a loan which requires small installments and is followed by a large balloon payment at the end. This type of loan increases the risk for the lender because if the borrower company goes bankrupt or is not able to repay their loans, the lender will lose all the money.
So, the risk for lenders is very high and to reduce this risk lenders were taking three steps:
- One they were demanding High Rate of Interest
- Second, Banks will sell these loans to companies who are willing to bear this type of high risk.
- Third, borrower companies will have to comply with their strict terms and conditions.
Lenders asked BYJU’s to get this loan through two Credit Agencies like Moody’s or fit, and they were also required to publish their audited 2021 financial results on time along with some other conditions put by lenders.
In July 2021, Byju’s raised $1.2 billion of Term Loan B and this loan offering was soon followed by a global challenge- the Russia-Ukraine war started in March 2022.
This increased the interest rates from 0.2% to 5.85% in Western companies. This spike in rates raised installments for companies who took loans during the low-interest period.
This is exactly the reason behind the fall of Silicon Valley Bank, You can Read Our case Study on the Fall of Silicon Valley Bank
Reports say that majority of lenders involved in the USD 1.2 billion Term Loan B (TLB) secured by BYJU’S have filed an insolvency petition with NCLT Bangalore against the company.
During this time, BCCI also accused Byju’s in court over some sponsorship issues and later on they were investigated by ED (Enforcement Directorate) due to violations of over 9000 crores.
Well, this is a story behind the fall of Byjus. Now let us discuss the lessons companies and individuals can learn from this case study.
What are the Lessons From Byju's Failure?
Should Know What are You Marketing
Every business sees marketing as a primary driver of revenue that’s why they spend most of their earnings on marketing their products and services.
No doubt marketing is a double-edged sword but if not used properly it could bleed your company with huge losses, which can be seen in Byjus’s case.
If You are Taking Loans Then Know How to Manage It Responsively
Any business can secure loans but only few know how to manage them easily. Byju’s management struggled to handle their loans smoothly and even failed to monitor where and how their funding was going.
Take loans only when necessary and avoid the trap of low-interest rates.
Should Have Clear Approach for Acquisitions
Acquisitions after acquisitions does not sound like a business strategy. Blindly acquiring companies will add you in the line of Byjus.
Each acquisition must align with the company’s long term goals & its objectives.
First of all evaluate how the acquisition will integrate with the existing operations and what value it will bring to the company. Strategic acquisitions should be planned very thoroughly to ensure that they will strengthen the company & address its weaknesses.
Deliver What You Have Promised
Today’s companies mostly focus on the speed of scale while great and sustainable businesses focus on ensuring that their products and services quality does not compromise while they scale.
At least deliver what you have promised to your customers.
The Bottom Line on Byju’s Failure
Wrapping up, the main factors behind the Byju’s failure was its aggressive marketing, overspending on advertisement and endorsements, internal conflicts, lack of proper management and negative publicity. Out of these aggressive expansion hurt Byju’s financial health the most.
Whatever the prime reason, you as a founder, student or a business owner can learn invaluable lessons from this collapse.
So, this is the story behind the collapse of once worlds biggest edtech startup– Byjus.
subscribe
