Byju’s Dramatic Fall
Byju’s, once a shining star in the edtech world with a valuation of $22 billion, has seen its worth drop to zero, according to HSBC. BlackRock, another major investor, has also written off its investment, marking one of the most dramatic declines in the startup sector. This collapse highlights significant financial and operational issues that have plagued the company recently.
High Valuation and Emerging Problems
In 2022, Byju’s raised $800 million, boosting its valuation to $22 billion. However, BlackRock soon revealed the company’s underlying troubles, valuing its stake in Byju’s at $0 in a first-quarter fund summary. By October, BlackRock had reduced its valuation of Byju’s to under $1 billion, as reported by TechCrunch.
Financial and Governance Challenges
Byju’s has faced significant financial reporting challenges, missing deadlines and falling short of revenue projections by more than half. Governance issues, such as the abrupt resignations of its auditor and board members, further destabilized the company and hindered a $1 billion fundraising effort.
HSBC’s note in late May echoed BlackRock’s bleak assessment. According to Business Standard, HSBC valued Prosus’s nearly 10% stake in Byju’s, worth $500 million, at zero. This stark revaluation reflects the severe legal and financial issues the Bengaluru-based company is grappling with.
Legal and Financial Troubles
Byju’s is entangled in a legal battle with a group of lenders seeking bankruptcy proceedings in the US for Byju’s subsidiaries over a $1.2 billion loan. In a cost-cutting measure, the company slashed new sales hires’ salaries by 90%, as reported by Inc42.
Investors, including Prosus, have called for the removal of CEO Byju Raveendran and his family from the board. The resignation of Byju’s India CEO in April and the failure to file its 2023 financial reports have added to the turmoil. Prosus criticized Byju’s for “regularly disregarding advice,” indicating a deep rift between management and investors.
Desperate Fundraising and Broader Market Impact
In a bid to survive, Byju’s raised $200 million this year, valuing the company at about $250 million. However, this investment is contested by some major investors, including Prosus. HSBC’s zero valuation of Prosus’ stake underscores the severe impact of ongoing legal disputes and financial instability.
Byju’s situation is part of a broader market correction observed by HSBC. The bank also reduced valuations for other startups, reflecting a significant market downturn. For instance, online pharmacy Pharmeasy’s valuation dropped to $2.8 billion from $5.6 billion in 2021, social commerce platform Meesho to $2.5 billion from $4.9 billion, agritech startup DeHaat to $400 million from $800 million, and logistics firm ElasticRun to $800 million.
HSBC also lowered the valuation of Stack Overflow, acquired by Prosus for $1.8 billion last year, to $900 million, and GoodHabitz to $100 million from $200 million. These reductions reflect a 50% discount on funding rounds older than six months, accounting for corrections in the public sector multiples of similar edtech and SaaS companies.
Future Prospects and Challenges
Byju’s, once a celebrated name in the Indian startup scene, gained significant traction during the pandemic with its innovative learning approach. The company even sponsored the Indian cricket team until 2023, attracting investments from notable backers like the Chan-Zuckerberg Initiative, Sequoia Capital, and Tencent.
However, the return of students to physical classrooms and the burden of expensive acquisitions have severely affected Byju’s financial health. The company’s plan to go public through a SPAC deal in 2022 fell through, adding to its woes.
The path forward for Byju’s is challenging. The company must address its legal issues, rebuild investor trust, and stabilize its financial situation. The drastic valuation cuts by HSBC and BlackRock highlight the urgent need for a strategic reassessment and operational overhaul.
