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

2 years ago, Byju's was the apple of investors' eyes. It was making money every month. People were giving money without asking. Byju's valuation reached 22 billion dollars. Brand ambassadors like Shah Rukh Khan and Messi were with Byju's. Byju's was sponsoring Indian cricket team and FIFA World Cup. It would have been difficult to find a person who didn't know about Byju's. Byju's was the pride of Indian startup ecosystem and edtech industry. Byju's was serving the country as well ... Byju's was

providing education opportunities to lakhs of people through technology. At least 2 years back, everyone thought that Byju's is good company with noble aim. Today, this company is about to close and people are cursing it. In early December, the founder of Byju's, Byju Ravindran, pledged house and took a loan of 12 million dollars to pay salary to the employees of the company in the month of November. In short, the fate of India's biggest unicorn and the most prestigious edtech company has chang

ed completely. The company is unable to pay salaries, PFs and TDSs. Company is in such a bad shape that the employees are not getting the FNFs, which means they are not getting the bonus, incentives upon leaving the company. And now, the office is unable to pay its utility bills. On top of that, the Foreign Exchange Management Act violation or FEMA violation accusation is there. The valuation has reached from 22 billion dollars to 3 billion dollars. But how did this happen? The company was edtec

h. Has the technology become outdated or have the children stopped studying? Byju's went up like a firecracker rocket and exploded in the sky And this story of explosion should not only be learned by a tech company, but by the entire startup ecosystem. Because this story is an example that when you invest a lot of money in a bad business model without thinking, and become very greedy, then despite blind growth, this model will break in the end. It is a lesson for you and me too. Don't get caught

up in the small talk and invest thousands of lakhs in any course. Find out what this course is, what you will get. Question everything. In the last episode of Deshbhakt, we showed how people like Vivek Bindra trick students In this episode, a bigger controversy. A company that is more capable of shaking the system. This is so big that Hansal Mehta says that he will name a season of the Scam as Biju's. Pradeep Saha has written an entire book - The learning trap, How Biju's took Indian EdTech for

a Ride. Pradeep is the co-founder of Morning Context. This is a publication that has been warning about the collapse of Byju's for years. But neither Byju Raveendran nor we understood the warning Let's rewind to understand the story. 15 years ago, Byju Ravindran founded Byju's parent company, Think and Learn. Byju Ravindran was born in 1980 in Azhikode, North Kerala. His father was a government school physics teacher and his mother was a math teacher. So, obviously, there was good studious atmo

sphere. Byju studied in this school till 8th grade and then he went to S.N. College, Kannur. Byju was an expert in both Maths and Sports, as per his classmates and teachers. After school, he studied Engineering in Government Engineering College, Kannur. He graduated in 2000. In 2001, he joined a shipping firm as a service engineer. Two years later, in 2003, he came back home. And in this holiday, his life changed. Some friends approached him for the CAT test. They asked him to help them Byju hel

ped a few dozen friends and four of them cleared the exam Those friends convinced Byju to take the test. Byju gave the test and scored 100% and became a topper. He got a call from IIM, he cracked the interview, he got the joining offers but he rejected them. He went back to his job as a service engineer in a UK-based shipping company, Pan Ocean Byju has repeatedly said that he never had a passion for MBA. He just gave CAT in a jiffy. Once again, in 2005, he gave the CAT exam. Again, he got a per

fect 100% Now his friends, friends' friends, friends' friends' friends, all come to ask him for coaching. Byju's started formal classes. And by the time they reach the 6th or 7th session, more than a thousand students start attending his classes. For the first time in his life, Byju realized that he liked teaching and wanted to do this for the rest of his life. In 2006, he started Byju's classes formally for CAT coaching. Students increased and soon he started teaching in auditoriums, teaching a

s many as 1200 students at a time. Classes were designed on freemium model. First class was free and if you liked it, then you had to pay Rs. 750 per session On weekends, Byju's also took 4 hours long workshops. Mostly, he taught such tricks to the students, so that the students could predict the questions, could find the shortcut to find the answer, etc. Now, news about this CAT topper spreads and Byju becomes famous If 10 students attended the first free session, 9 out of them would enroll in

paid workshops. the business model was very successful and people trusted them a lot. Between 2007 and 2009, Byju Ravindran started targeting undergraduate students. He worked hard and expanded his classes to 9 cities. His popularity kept on increasing. In 2009, he introduced video lectures. He launched UPSC courses. In 2011, Think and Learn became a corporation. He brought many former students to his company board. Including his future wife Divya Gokulnath. His company kept on expanding. He sta

rted offering school courses. The team started experimenting with textbook content. Byju's unique teaching style was to break down chapters into segments and explain them in video format. Byju's opened an offline coaching centre for high school students in Bengaluru. So that they could test this new video product. Now remember, this is about 2011-2012 At that time, video education was not as mainstream as it is today. Soon, Byju started conducting mega workshops so that they could attract studen

ts to their tuition centres. Just like he did with their CAT classes earlier. Gradually, batch sizes reached 25,000. And this was just the beginning for them. Byju realized that every student has a different way and different speed of learning. Some students learn better by reading books. Some understand better by watching videos. Some like stories and some like hands-on activities. That is, for maximum impact, the company will have to try every approach to maximize the impact. The company hired

experts, mixed the text with video and animation, tried to explain concepts through everyday examples. This was a revolutionary step in the Indian education system. Remember, our system has been around for decades to teach students to score marks, to focus less on learning, more on marks and not on fundamental concepts. Byju's attempt was to change the system. In 2012, he met Ranjan Pai of Manipal Group. Ranjan Pai had come to his hometown where he saw students listening to a teacher. Pai talks

to Byju. They talk for a long time. And in the end, Pai invests 50 crores in Byju. But there is one condition. Byju has to go digital. 3 years after this meeting, in 2015, Byju launched the learning app. It had built-in content for different classes. From board exam preparation to kindergarten, the company had completely invested in school education. In June 2015, the company took a $25 million investment from Sequoia Capital India, which has now been rebranded as Peak xv Ventures. The next yea

r, the company raised $50 million under the Chan-Zuckerberg initiative. Byju's was now in the limelight and people were ready to invest in it. They made Shah Rukh Khan the brand ambassador. In 2017, Harvard Business School prepared a case study on how Byjus was having an impact on a learning ecosystem. Remember, as we said earlier, Byju's story was not just about money and profit, but about impact. And that's why people trusted them with money. Byju's became a big name in the industry. Growth at

tracted even more money. By the end of 2018, Byju's became the first ed-tech Unicorn in India. Unicorn, when a company's valuation is more than 1 billion dollars. Byju's sponsored the Indian Cricket team. The atmosphere was such that almost everyone had heard the name of Byju's somewhere. And then comes the COVID-19 pandemic. There was a big opportunity for the edtech companies. Schools were closed and education was affected by the lockdown Lockdown affected 1.6 billion learners in 190 countries

as per UNESCO report And in this same figure, edtech companies saw a huge opportunity and jumped on the field to fill the learning gap. To take advantage of the opportunity, online learning companies first of all made their platform free access for students. Between March and October 2020, pageviews increased by 150% Indian government also introduced a national education policy in which, there was a lot of focus on online education. And the result of all this was that the spark of ed-tech turne

d into forest fire. This explosion was so sudden that no one had time to rest or think. Everyone was busy catching trains and investors were also funding this exponential growth. Edtech sector received $6.65 billion funding from venture capitalists and their companies from Apr 2020- May 2022 Now, think about it, half of this, meaning half of the industry, $3.3 billion went to BYJU's, so it was a big bet. Now, what happens with this is that the company's valuation doesn't double, it triples and r

eaches up to $22 billion, like overnight. Byju's started buying dozens of companies. They had money in their wallets. This list included coding platform White Hat Junior, offline coaching institute Akash, K-12 platform Toppr, and higher education platform Great Learning. And in the path of this blind growth, Byju's wheel slipped. Because Byju's became a textbook example of Too Big Too Soon Because of this, the company was under a lot of pressure. Expectations started to rise that now you have t

o show exponential growth because of all this, a lot of pressure was put on the company's employees. That bring money, bring more deals. And a lot of impact was also on the company's accounts - they were also affected. Byju's was about to collapse by the end of 2022 as it failed to meet expectations But there were systematic problems in the company from the start The pandemic and the blind growth made the situation worse. Employees talked about toxic work culture... impossible targets, unsustain

able timings, abusive bosses... this increased. Byju's predatory sales tactics surfaced... People started talking about it on social media. And some publications showed this. How salesperson of Byju's used to pressure parents, to take out loans, to sign up. Parents want their kids to become doctor or engineer - You know the situation in India. A company comes, scares and threatens them, creates a FOMO that if you don't take this digital course, your child's future will be ruined. Byju's salesper

son promised discounts. But never gave discount. They lied about the return window, if there is mistake, you won't get your money back. Salesman took phone and identity cards to sign up for loan without consent Many parents were stuck in the debt trap as they did not know how to pay back to the bank And in the end, the result of all this was that Byju's own loan was not paid. By April 2023, pressure of lenders built up and further loan was not sanctioned to Byju's God gives a lot but when you ta

ke advantage of people in the name of education then Goddess Saraswati might have decided to teach a lesson Two things happen with the growth of Byju's. First is that the lockdown ends and students start going back to school. The edtech companies realized that the boost they got in their business due to the pandemic was a temporary phenomenon. The theory of the ed-tech companies was that online learning will replace offline learning. Just like Abeyy Editor used to think of working from a bed But

just like Abeyy Editor thought wrong, Byju's also thought wrong. Ultimately, people will go back to their offices and schools. Because you cannot do full education in front of a screen. Byju's and ed-tech had to tackle this as industry changed overnight again The second important thing was that the US Federal Reserve changed its policy. Now, it is a complicated issue But, basically, these investment companies started getting attracted to stable government bonds. They started withdrawing money f

rom volatile tech startup market. Suddenly, the money in the tech startups market disappears. And, even if there was money, their conditions, their interest rates change. Byju's was not able to raise money Suddenly, things got worse. Data speaks for itself. Byju's reported that their revenue did not increase in 2020-2021 and was same as 2400 crore. It's a big amount. But the net loss was 4,500 crores. Okay, let's assume that you were growing so fast. But why take such a risk? Another big risk th

at Byjus took was that after 31st March 2021, they refused to share their financial data. We were unable to find out anything about the financial health of the country's biggest startup for 33 months. We'd get a notice if Rs. 2 don't match up, but here the finances from the authorities were hidden for 33 months. But there was another problem. Remember how fast Byju's acquired companies, raised funds? People joked that Byju's might end up buying CBSE Byju Ravindran wanted to make a 100 billion do

llar company but he wanted to do it quickly They took money from the market. Byju's was hungry to grow. So, they kept buying companies. Didn't think about profit or returning money This hunger to acquire became Byju's biggest mistake. For example, they acquired White Hat Junior at 300 million dollars in 2020. Today, the same White Hat junior is losing millions in the account of Byjus. During the two years of the pandemic, Byjus spent 2 billion dollars in acquisitions. Spent tons of money in mark

eting. They bought US companies so that they could grow in the US market as well. The money Byjus had raised, they needed more money than that to run the companies and make them profitable. So, in November 2021, Byju's took a $1.2 billion term loan B from a US lender. This was the biggest loan ever taken by Asian companies at the time, loan was available and there was a special reason for taking it. Founders didn't have to dilute their equity. Their share was safe with them. Ravindran must have

thought that he will make the business grow anyhow. He will get profit in US growth. Take the loan and make company worth 100 billion dollars. Pay off debt and the company's shares will be his But his theory, engineering logic, didn't work in the practical exam. Every loan comes with some conditions. When the loan is so big, the collateral of the loan is also big. We will not bore you with all the details. Just know that the lenders said that Byju's broke promises and agreement, the loan conditi

ons were not met. As a result, the loan was defaulted. Byju's and their lenders had a dispute. Three different courts cases in the US Byju's stopped paying interest. Lenders seized Byju's alpha subsidiary, as penalties were increased by the day. During this time, the business of Byju's was also in a bad shape. The first reason is that the schools reopened. The second reason is that Byju's shady marketing tactics. Third, the learning model of Byju's was not beneficial for students. It was not a p

roven learning outcome after so much money was invested in the ed-tech platform Fourth, the business of Byju's was exposed. Who will help them in the situation when so many cases were ongoing? Funding was already depleted. To survive, Byju's stopped marketing spend and started cost cutting Byju Ravindran, wife Divya Gokulnath and brother Riju Raveendran started selling shares and earned $400 million. These transactions are done in the secondary market, i.e. when the founder sells some of his sha

res to investors at a discounted rate. this is a common thing in the startup economy. But the surprising thing is that the shares sold were 25% of the founders' total equity. Usually this is big % to sell people were doing firefighting, trying to save Byju's, and here they were making money. And maybe this step was taken because the company was getting worse. Valuation was being reduced In their latest estimate, Prosus, which is a very big technology investor group, reduced the valuation of Byju

's to $3 billion. This company was sitting at $22 billion last year. For this 85% fall, Prosus said that Byju's is not transparent about its financial condition - does not release financial numbers. The government issued a probe against Byju in April 2023 under the Foreign Exchange Management Act, which regulates foreign transaction for national interest. ED accused Byju's of violations of 9000 crore Byju's has said that this is just a technical notice. But it is difficult to believe what the co

mpany is saying Because every allegation, every issue is a technical glitch according to them But one thing is clear. Byju's has defaulted on payment From employees' salary, incentives, PF, government's TDS, FNF, vendor payment, lease, utility bill. This list is very long. Recently, BCCI has dragged BYJU to NCLT, National Company Law Tribunal. They have started insolvency proceedings because BYJU has not paid yet. You are sponsoring Team India. That payment must be huge. This is just BCCI and it

can get worse. There are other vendors whose payments are pending for months. They are giving legal notice. Byju's has a mountain of debts. They are not getting revenue. The company tried to sell some assets which it had bought during the pandemic. But the negotiations didn't go well as the assets were also bought at high prices. The company has no money but salaries must be paid so they have to mortgage house, raise 12 million dollars for salary When you are in debt you have to mortgage someth

ing ... like editor's computer Basically, he must have thought to show that he is mortgaging house. When was the last he came to India we don't know - but he mortgaged house to show they are trying But no one believes this story. On the contrary, people are more angry with Byju's. Byju's has fired 5000 employees since March 2022. Many parents have been trapped in a debt trap. Everything was happening right under his nose of board members and investors. So it may be difficult for people to develo

p sympathy for the company. And by the way, Byju Raveendran and his family have bought houses in many cities. They got 400 million after selling shares So, for now, this attempt to show 12 million dollars - that he has mortgaged their house. This is just a PR drama. And the interesting thing is that even after showing that they have mortgaged their house, reports are coming that employees have not yet received their salary. Former employees have also exposed on social media that their salary fo

r November has not yet been reported in the accounts, PF FnF TDS delayed Will the condition of Byju's get worse? Or, will they be able to bring some improvement? If the founders mortgage 3-4 more houses, then also, it is very difficult to keep their company alive. Now, if you want to know more about this, then you should read the book by Pradeep Saha, co-founder of The Morning Context He has said it for years that the way this company was running, it would fall into a pit. his book is - The Lear

ning Trap : How Byju's took Indian edtech for a ride We can also learn from this case not to make a hero of a person. Question everyone, whether it is fashionable or not. Initially those questioning were called anti-nationals. If questions were asked at the right time, company would be forced to take action and such a begging state of once prestigious company won't be the case When will Byju return to India don't ask me. Employees and parents are the ones suffering. Top level people will live ab

road - you and I need to think more.