Byju’s, the ed-tech company, once hailed as the biggest and most successful startups in the country, now finds itself in a tangled mess of layoffs, key investors pulling out, Enforcement Directorate (ED) raids, and legal complications. Founded by Byju Raveendran in 2011, the company expanded quickly and acquired several education-related companies, including WhiteHat Jr, Aakash, Hello English, Toppr, to name a few. The ed-tech startup also capitalised on the pandemic as students did not have physical classes and were available to take the classes offered by the Byju’s. In October 2022, the startup was valued at $22 billion after it managed to raise a fund of $250 million. So where did it all go wrong?
In June 2022, the Byju’s laid off 600 employees from Toppr and WhiteHat - Jr. Toppr was acquired by Byju’s in 2021 and WhiteHat Jr in 2020. This first round of layoffs came amid reports that Byju’s had delayed payments to Aakash Educational Services, after acquiring it for $1 billion.
Even while it was being valued at $22 billion, Byju's announced that it was planning to lay off nearly 2,500 employees to cut costs. This was 5% of the total 50,000 employees at Byju’s. During this announcement, founder Byju Raveendran apologised to his employees for having to let them go and cited “macroeconomic conditions” as the reason behind this cut. But the layoffs did not end there.
In June 2023, the company announced that 1,000 more employees were being laid off as a part of their restructuring process. But according to a report from the Mint, the number of employees stood at 50,000 due to new hires.
Reports also said that employees were not given prior notice about their layoffs and were fired via meetings and phone calls. After the layoffs this year, Byhu Raveendran promised that there would be no more layoffs.
In April 2023, the ed-tech startup came under the scanner of the Enforcement Directorate (ED), and three of its offices in Bengaluru were raided, under the provision of the Foreign Exchange Management Act (FEMA). According to reports, the ED searches revealed that the company received foreign funds close to Rs 28,000 crore from 2011 to 2023. Apart from that, the company has also remitted Rs 9,754 crore to various “foreign jurisdictions in the name of overseas direct investments" and Rs 944 crore was earmarked by the Byju’s for advertising and marketing purposes.
After the raids, a spokesperson from Byju’s said that this was a “routine inquiry under FEMA” and that they had been completely transparent and co-operated with the authorities. Byju Raveendran sent an email to his employees assuring them that they were faithfully complying with the FEMA.
To make matters worse for the ed-tech company, it is now embroiled in a legal battle with one of their lenders. The company missed a quarterly interest payment of Rs 330 crore ($40 million) in June 2023 of a loan from November 2021. Instead of making the payment, the company sued an American investment management firm Redwood for “accelerating its demand” to pay the $1.2 million (Rs 9,914) loan. The loan borrowed by Byju’s is called Term Loan B or TLB. It is a form of payment where borrowers have flexibility in repayment and are an attractive option for those seeking long term financing. TLBs usually mature within a period of five to seven years.
According to the India Today, this loan is causing most of Byju’s financial problems and said that Redwood’s acceleration to return this loan was “high handed.” Byju’s claimed that the lenders were accelerating their payments due to alleged “non-monetary and technical defaults” but the company stated that they had not defaulted in their payments. Despite no defaults, the company claimed that their lenders are seeking a complete repayment of the loan. The case was being fought in American courts and the firm would not repay the loan until the dispute was resolved.
Things became more difficult for Byju’s after three high profile board members exited from the company in June 2023. Reports said that GV Ravi Shankar, the Managing Director at Peak XV Partners (formerly Sequoia Capital India), Russell Dreisenstock from Prosus, and Vivian Wu from Chan Zuckerberg’s Initiative have expired from the board of directors.
In the same month, the financial auditor of the company Deloitte also resigned. While Byju’s said that the resignation was amicable and mutual, Deloitte alleged that the company had not provided the necessary documents to complete the financial audit on time. In a letter to the parent company of Byju’s - Think & Learn Pvt Ltd - stating that the financial statements for the year ended on March 2022 were long due, so it would impact their ability to plan and complete the audit on time.
Dutch investor and one of the biggest stakeholders in Byju’s, Prosus, said that the valuation of the ed-tech company had been cut down. In October 2022, the company was valued at $22 billion but Prosus devalued the fair value to $ 5.97 billion. This devaluation came shortly after Russell Dreisenstock exited from the Byju’s board. Another investment management company, BlackRock, also reduced Byju’s valuation to $ 8.3 million.
Apart from the legal and financial struggles, there have also been complaints against the company for predatory sales techniques to get parents to sign up their children for online classes. Reports said that the head of National Commission for Protection of Child Rights (NCPCR) Priyank Kanoongo said that the company was targeting first generation learners and forcing parents to buy their courses. He further alleged that they had acquired the parents’ phone numbers, apparently with a view to selling them to others, on the lookout for such who could afford such high-end online educational courses. But Byju’s denied the allegations and stated that they had not bought any such database.
The company is also under fire allegedly for mistreating its employees. An investigation by Context revealed that several employees charged that they were subject to long working hours, physical and verbal abuse and misleading clients to sell their classes. Out of the 26 employees who spoke to Context, several said that they were “treated like slaves” and experienced “mental torture.” Several employees also said that they were physically held from leaving the office until they met their sales targets.
While Byju’s is grappling with the difficulties on the legal and financial front, the company has roped in Mohandas Pai, the former Chief Financial Officer of Infosys and Ranjish Kumar, former Chairman of the State Bank of India (SBI) to be a part of its new advisory council. This has been done to strengthen the company’s governance mechanism. Byju’s also cleared out one of its largest office spaces in Bengaluru at the Kalyani Tech Park in an effort to cut costs.
In a townhall held on June 30, the CEO Byju Raveendran said that the “best is yet to come” for their company and that “things are not as bad as you think.” He also said that Byju’s is in better shape than it was six months ago and that they are working towards resolving the challenges it had faced over the past few months. While the company seems to be trying to make drastic changes in the way it is operating, only time will tell if they are able to succeed in their endeavours and succeed in remaining one of India’s most valued startup companies.