Byju’s, the edtech startup that once held a prominent position as one of the most influential and iconic startups in India, is currently experiencing an unprecedented crisis of significant proportions.
The ed-tech startup that was once hailed as a leading force in the Indian startup ecosystem, finds itself in the midst of an alarming crisis. The company is grappling with mounting debts on its balance sheet, loan defaults, lawsuits from lenders, an ongoing investigation by the Ministry of Corporate Affairs, and crucial resignations from its board.
The repercussions of this crisis are anticipated to have far-reaching consequences for the startup ecosystem in India.
Crisis @ Byju’s – Financial Challenges and Auditors’ Resignation
In recent years, Byju’s has embarked on a series of substantial acquisitions, with reports suggesting that many of these acquisitions were financed through loans obtained from financial institutions. Among its notable acquisitions are Great Learning Pvt. Ltd., which was acquired for $600 million in July 2021, Aakash Educational Services Ltd., acquired for $950 million in April 2021, and WhiteHat Jr., acquired for $300 million in July 2020.
Byju’s strategically pursued a series of acquisitions during the COVID-19 pandemic, capitalizing on the booming edtech sector. The global health crisis resulted in a substantial increase in demand for edtech products, as students faced challenges attending physical classes. The edtech sector experienced a significant influx of investments, and Byju’s sought to consolidate its position by leveraging this trend.
However, the situation took a drastic turn when the pandemic subsided and schools resumed offline classes. Edtech companies, including Byju’s, faced a challenging scenario where they struggled to generate revenue and sustain their business. The shift back to traditional classroom settings posed significant difficulties for the edtech industry, impacting their ability to attract customers and maintain profitability.
As per its financials for the fiscal year 2020-21, Byju’s recorded a substantial loss of Rs 4,589 crore, which was approximately 20 times higher than the adjusted loss of Rs 231.69 crore reported in the previous fiscal year 2019-20. Furthermore, the company experienced a decline in revenue by 3 percent on a consolidated basis, with the figure dropping from Rs 2,511 crore to Rs 2,428 crore during this period.
The company’s delay in submitting its annual returns for the financial year 2022-23 has sparked speculations about its financial health. In August of the previous year, media reports highlighted that the Ministry of Corporate Affairs (MCA) had sent a letter to the edtech giant, requesting an explanation for its failure to file the financial results for the year 2021.
In a recent update, Deloitte Haskins & Sells, the auditors of the company, have resigned due to their inability to complete the audit reports for the financial years ending in March 2021 and March 2022. This resignation comes amidst growing concerns about the company’s financial situation. Byju’s, on the other hand, characterized this change as a planned transition and has appointed BDO (MSKA & Associates) as its new statutory auditor.
Resignation of Board Members Adds to Byju’s Challenges
Byju’s are now facing additional turmoil as three board members resigned from their positions, citing disagreements with the management of the Bengaluru-based edtech company. GV Ravishankar from Peak XV Partners, Russell Dreidenstock from Prosus, and Vivian Wu from the Chan Zuckerberg Initiative have all tendered their resignations, further adding to the challenges faced by Byju’s.
Prosus confirmed the resignation of Russell Dreisenstock and stated the need to file the resignation letter with the Ministry of Corporate Affairs (MCA) in India. The Chan Zuckerberg Initiative spokesperson confirmed Vivian Wu’s departure from the board.
Byju’s had previously referred to media reports regarding the resignation of board members as speculation and urged the media to rely on official sources for news and information.
Ministry of Corporate Affairs Orders Inspection
Meanwhile, there have been media reports suggesting that the Ministry of Corporate Affairs (MCA) has initiated an inspection into Byju’s regarding alleged corporate governance issues. Given the resignations, and ongoing lawsuits related to debt, and financial crisis, industry analysts had anticipated such a move by the MCA.
However, Byju’s has denied these reports, stating that it has not received any communication from the MCA regarding an investigation into the company.
Lawsuit against lenders
Byju’s recently filed a case against one of its lenders in the New York Supreme Court, challenging the acceleration of the term loan B that was raised in November 2021. The company also defaulted on a $40 million interest payment due on June 5, further complicating the situation.
Byju’s had been in discussions with its lenders since December of the previous year, seeking more favourable terms on the loan in an effort to reduce costs and achieve profitability.
However, the lenders insisted on faster partial repayment of the $1.2 billion loan after Byju’s failed to meet certain conditions, including the deadline for filing its results for the year ended March 31, 2022, which was set for September 2022. These negotiations were terminated by the lenders, who subsequently filed a case against Byju’s in the Delaware court.
According to news reports, Byju’s is engaged in discussions with investors to potentially reconsider their decision to resign from the board of the educational startup. It is presumed that the edtech giant is also in talks with lenders and investors to prevent any disruptions in its financials.
