The rise and fall of Byju’s, India’s once-beloved startup

Byju’s, once India’s most valuable startup, has suffered a sharp turn in its fortunes following a series of setbacks, including alleged accounting irregularities and alleged mismanagement.

Valued at $22 billion in 2022, the Indian edtech startup’s valuation has plummeted 95% after investors cut stakes in several rounds. Most recently, it was reduced to $1 billion after BlackRock reduced its holdings in Byju last month, according to media reports.

The company, which offers services ranging from online classes to offline learning, raised billions of dollars from investors around the world during the Covid-19 pandemic, when online education services were in high demand.

Last Friday, Byju’s major shareholders, including Netherlands-based global investment group Prosus, voted to remove founder Byju Raveendran as CEO.

Investors attending an extraordinary general meeting “unanimously adopted all resolutions put to vote” that also sought to replace the board, according to a statement sent by Prosus to CNBC.

“These included a request to resolve Byju’s pending governance, financial mismanagement and compliance issues; restoring the Board of Directors so that it is no longer controlled by the founders of [Think & Learn Private Limited]; and a change in the company’s management,” said the statement released last Friday.

However, Byju’s rejected the decisions, saying the extraordinary general meeting was “invalid and ineffective” due to the low turnout, attended by only a “small group of selected shareholders”.

“Passing unenforceable resolutions challenges the rule of law at worst,” the Bengaluru-based firm said in a statement to CNBC.

“Byju’s emphasizes that the Hon’ble High Court of Karnataka has granted interim relief by clearly stating that all decisions taken during the meeting will not take effect till the next hearing,” it said.

“Because the incorporators did not participate in the meeting, a quorum was never legally established, rendering the resolutions null and void.”

The company claimed that the launch of its flagship product, Byju’s — The Learning App, saw two million downloads within three months of its launch in 2015. The app offers interactive videos, games and quizzes to help students with daily lessons as and with exam preparation.

The Covid-19 pandemic brought exponential growth to Byju’s as traditional classrooms closed, leading to a spike in demand for online learning.

In November, Byju co-founder Divya Gokulnath told CNBC that the company has more than 100 million monthly students on its platform.

Byju’s growth has attracted global investors and significant funding rounds, including $1.2 billion in debt financing in November 2021, according to the company’s database service Crunchbase.

Loaded with funds, Byju’s began acquiring between 2017 and 2021.

Some of Byju’s biggest acquisitions include Aakash Educational Servicesa leading test preparation company in India which it reportedly paid about $950 million in 2021.

Other strategic acquisitions include US-based children’s digital reading platform Epic ($500 million), maker of Osmo educational games ($120 million) and an online coding school WhiteHat Jr.

“2022 will be the year of maximum acquisitions, nine big ones. So the pandemic was great because it solved the biggest challenge of people not knowing how online education can be part of mainstream education,” Gokulnath told CNBC last November.

“But the downside was also that we had to grow at a breakneck pace. We had to grow to make sure we could meet the demand,” she added.

The end of pandemic restrictions led to delays in online learning and Byju’s had to lay off at least 1,000 employees last June, according to Tech Jobs stalker abbreviations.fyi.

That same month, the company’s auditor Deloitte and three of its prominent board members severed ties with Byju’s as questions arose about the company’s financial health and management practices, according to a Reuters report.

Byju’s filed its 2022 financial statements in November last year, after a one-year delay due to management problems and the resignation of its auditor. Operating losses totaled 24 billion Indian rupees (about $290 million) for its core online education business.

“One thing we should have focused on earlier is governance,” Gokulnath told CNBC in the November interview. “It’s something we’re constantly building on over the next year. I hope we can also stand on the side of the administration.”

Byju’s is reportedly struggling to repay a $1.2 billion loan and it is said to be struggling with staff wages as well. The firm said in January that it did raising a $200 million rights issue to clear “immediate liabilities” and for other operating expenses.

The American unit of the company Alpha filed for Chapter 11 bankruptcy proceedings in a Delaware court on February 1.

Byju’s did not respond to CNBC’s request for comment.

On whether Byju’s has lost the confidence of shareholders, Gokulnath said in November: “We would like to believe that we have not because we have always had the interest of our students, parents, employees and shareholders in mind and what we do, we do, to build this back together.”