Once hailed as the golden child of India's startup scene, and a global success story for the edtech sector, BYJU's has become a cautionary tale. We enlisted Matt Tower from ETCH, one of the sharpest BYJU’s observers out there, to co-author our article this week to give readers EYNTK (“Everything You Need to Know”) about the BYJU’s saga.
Matt has been following BYJU’s rise and fall in a series of posts dating back two years, when the wax in BYJU’s wings first started to melt. Matt has even scripted a Netflix series about it!
After a slow simmer of strange headlines for two years, the past three months have seen BYJU’s rapid and dramatic demise, sending shockwaves through the edtech world. Let's dissect this story together to understand how the eponymous edtech founder and supertutor Byju Raveendran lost his way, where things are headed from here, and what lessons might be learned for all edtech ventures, big and small.
How BYJU's Got Here: Taking Off
Scaling the Supertutor: Reaching for the Stars
BYJU’s was officially founded in 2011 by Byju Raveendran and his wife Divya Gokulnath, both professional educators, but its origins run much farther back. Byju’s parents were professional STEM educators as well. After scoring in the tip-top percentile of India’s Common Admission Test (CAT), the admissions test of the Indian Institutes of Management (and as of 2011, also the Indian Institutes of Technology and Indian Institutes of Science, cornering the market on competitive education throughout India), Byju began tutoring others in the exam in the early 2000s.
The demand for high quality CAT tutoring was outrageous! Byju first incorporated BYJU’s tutoring in 2007. This was the non-technical version, consisting of Bjyu teaching classes that could fill stadiums. Divya was one of Byju’s early students, and they married in 2009. Byju and Divya then created the edtech version of BYJU’s in 2011, aiming to scale the tutoring offerings through mobile devices as the Indian middle class grew in leaps and bounds. Divya was one of the original teachers in the BYJU’s videos, and Byju himself became the Sal Khan of the CAT. BYJU’s expanded its offerings into a wide variety of K12 and Higher Ed subjects.
Unprecedented Growth and Investment: Building Wings
BYJU's had tapped into a genuine student need – tech-enabled scalable tutoring and student-centered lessons that supplemented rigid Indian classroom education, focused on real and tangible outcomes in a country with a massive market obsessed with education-based mobility. But instead of building steady organic growth, BYJU's was fueled by free capital during the zero-interest rate era from a torrent of venture capital investors like Sequoia Capital, Blackrock, Silver Lake, and CZI, as well as edtech investors like Owl Ventures. Even larger tranches of capital poured in through the Qatar Investment Authority. With billions at its disposal, BYJU's valuation grew at light speed. BYJU’s soon became India's first decacorn (private company valued at over $10B), and BYJU’s was just getting started. At its height, BYJU’s was valued at an eye-popping $22B dollars (about the valuation of eBay or Dell), the highest valuation of any Indian startup across all sectors.
Predatory Practices: Speeding Toward the Sun
Explosive growth demands sales, and BYJU's started to be accused of fear-mongering tactics to meet quotas. Salespeople told parents their child's future hinged on their product, and relentlessly pressured and exploited the aspirations of many less-affluent families. This drove incredible growth in new customer activation, but also led to significant year-over-year churn as many users grew disillusioned. In just four years, BYJU’s had burned through nearly the entire Indian consumer market.
M&A Spending Spree: Stellar Hubris
With sales flowing, ample investment capital and aggressive growth targets, BYJU’s set off on one of the most ambitious M&A agendas the edtech space has ever seen, acquiring 17 companies in India and the US. The eight biggest acquisitions are listed below, most were financed by a mix of cash and equity. The strategy was unclear. While some acquisitions were in BYJU’s test prep space, others focused on early literacy or hybrid learning.
Even at the time, observers wondered whether there was a method behind the madness or if Byju and his executives were just punch drunk on capital. Either way, the net result was a sprawling empire with many different products, markets, and business models, and a complex web of investors, who by virtue of the M&A equity, held stock in BYJU's parent company.
While BYJU’s marketing department and acquisition-focused press releases painted a picture of success, hidden financial cracks grew rapidly. Audited financial documents were delayed for over a year, raising significant red flags. Everything BYJU’s related involved absurd sums of money… BYJU’s had raised a total of $5.08 billion over 28 rounds from 121 investors. Beyond the almost $3 billiondollars worth of acquisitions, sketchy large-dollar deals were everywhere: Byju put $400 million of his own dollars into a funding round, BYJU’s funded a dubious "hedge fund" run out of a Miami IHOP to the tune of $500 million, BYJU’s offered soccer superstar Lionel Messi $5-7 million dollars a year in a three-year deal to promote BYJU’s. All of these incidents further eroded investor confidence.
Breakdown with Investors and Government Scrutiny
After mounting frustration with the lack of transparency and aggressive burn rate, the BYJU’s board staged an unprecedented walk-out, with CZI, Prosus, and Sequoia India all vacating their seats in what constituted a vote of no confidence in BYJU’s leadership. Deloitte resigned as the auditing firm, and speculation about the future of BYJU’s even spilled into mainstream media. Adding to the drama, the Indian Ministry of Corporate Affairs stormed the offices of BYJU’s, leading to the prospects of criminal prosecution for financial fraud for Byju and his leadership team.
Where Does BYJU's Go From Here?
BYJU's Hanging by a Thread
After skipping a $40m loan payment in 2023, facing bankruptcy in the US and possible criminal investigation by India's government, BYJU’s $22 billion-plus valuation has plummeted by 99%. The Messi deal was put on hold in early February. The Indian, and then the global, press pounced on the riches to rags story, and BYJU’s reputation quickly went from outsized edtech success to cautionary tale.
A Forced Sale Seems Inevitable
Some of the more successful assets in the BYJU’s portfolio could certainly be valuable once they are freed from the debt obligations of the parent company. Test prep giants like Aakash or professional skills platform Great Learning might find new owners with more ethical governance structures in place. Smaller purchases like kids' coding app Tynker or mathematics platform GeoGebra may be attractive to other edtech players seeking to consolidate and salvage good educational products. However, it's likely many subsidiaries will struggle, tainted by association, or simply fold if buyers don't materialize.
But after shopping their portfolio companies for the past year (a possible sale of Epic! for $400m has been reported), it’s become clear that selling their assets won’t be enough for BYJU’s to pay back their massive debt, so creditors will likely drive a restructuring. How long this takes and whether the portfolio companies can survive it is now anyone’s guess.
BYJU's has been a wake-up call. Investors will no longer accept hockey-stick growth projections and spectacular valuations that obscure a lack of sustainability. Ethics and the integrity of business practices will come under a far harsher spotlight. Generalist investors who may have flirted with edtech during the pandemic will surely see BYJU’s— along with 2U, which also overspent on acquisitions and is now in danger of being delisted from Nasdaq for its <$1 stock price — as a sign to stay away.
Return to Quality
BYJU's may inadvertently give a leg-up to smaller, but more thoughtful, edtech startups that emphasize genuine educational impact and sustainability. The emphasis will shift back to improving outcomes for learners, not simply capturing market share and growing at all costs.
India's Startup Image
The Indian startup scene is one of the world's most dynamic. While many thrive, BYJU's has rapidly exposed the dark side of hype-driven culture, where astronomical valuations trump good governance. This cautionary tale should drive necessary reforms, and other large Indian edtech companies, like Upgrad, Emeritus, and Vedantu, may have to swim upstream in much choppier regulatory waters.
Conclusion and Lessons Learned
BYJU's is a painful reminder that shortcuts and spending sprees don't build lasting businesses. Education is an enormous market, but ethical integrity and a focus on student success must remain guiding principles. Hopefully, the ashes of BYJU's will be used to instruct and fertilize the next generation of edtech leaders focused on creating real value, not just hype.
While some of the BYJU’s Icarus story can be chalked up to systemic factors, like the zero-interest environment fueling huge investment rounds, or the COVID growth and bust cycle in edtech, the BYJU’s story has many specific important lessons that will impact edtech for years to come:
Big TAM is not enough. BYJU’s relied on investor math that focused on growth rates and huge total addressable markets in Asia, but the math never panned out as expected. Companies still have to show sustainable business models to succeed.
Good governance and founder-investor relationship are incredibly important. BYJU’s boasted many of the best institutional investors in the world, but they were still unable to steer the company away from financial mistakes and embarrassing missteps.
Non-Strategic M&A often doesn’t work, especially without a clear strategy. Observers who scratched their heads over BYJU’s acquisitions that leaned into different geographic and demographic markets were right to be skeptical. Moreover, many of the employees at the acquired companies could never see the logic in the acquisitions, and employee turnover spiked.
Edtech is all about retention and reputation matters. BYJU’s negative reputation with many customers during their rapid growth phases, leading to high churn rates and online complaints, negated many of their structural advantages, like early ownership of the massive Indian market and a large salesforce.
Edupreneur founders need financial expertise. There is no question that Byju is a brilliant mind and a spectacular teacher, but his decisions not to listen to financial advice from investors and advisors, or to rely on executives who could check the company’s outsized spending, were disastrous.
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This edition of the Edtech Insiders Newsletter is sponsored in part byAIR Show!
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Join Alex Sarlin and Charlotte Ward Friday, February 23 from 10 am - 11 am PST for a PR 101 workshop packed with actionable takeaways tailored specifically for edtech founders including:
Charlotte’s “secret” recipe for a pitch that will get responses
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The typical timeline for a successful PR launch
A rundown of the current edtech media landscape and who to pitch
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2. AI Monitoring for Mental Health Concerns in Schools
Time recently released a story on how schools are leveraging AI-based student monitoring software to flag when students may be experiencing severe mental health challenges. As suicide continues to soar among American youth, this is one approach that is being taken to mitigate the effects of limited mental health support and struggling kids. However, the results are largely unsuccessful, and bring in a new host of privacy and ethical issues.
On February 13, 2023, the Digital Citizenship and Media Literacy Act was introduced in the Senate. The bill’s goal is to increase media literacy education and help students navigate disinformation, ultimately strengthening digital citizenship.
This has led to the development of five competencies by the ISTE-led Digital Citizenship Coalition: balanced, informed, inclusive, engaged and alert. Beyond the digital citizenship competencies, ISTE has provided resources for educators to prepare students to use technology safely, ethically and effectively.
Reach Capital has released it’s newest edtech funding report, with tons of analysis of where the industry has been and where it’s going! Take a look for the deep dive you need on all the things edtech market.
This edition of the Edtech Insiders Newsletter is sponsored byTuck Advisors.
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We have had some amazing guests on The Edtech Insiders Podcast in the last few weeks. One of our stand-out interviews from this past week is Hillary Clinton!
Hillary Clinton discussed the mixed state of children and families in America with us, highlighting concerns about the adequacy of support from the government at various levels towards childcare and paid family leave. She emphasized the importance of addressing issues like child hunger, affordable housing, and mental health to improve the well-being of families.
"We don't have enough of a commitment from our government at the national, state, or local level to invest in kids, we don't have enough child care. We don't have paid family leave so that families can get off to a good start with their children and go to work with the peace of mind that quality child care provides."
- Hillary Clinton
Early Childhood Education
Clinton stressed the critical importance of quality early childhood education and the need for national initiatives to establish high-quality pre-K programs. She mentioned the benefits not only to children but also to families and society at large, advocating for a shift in political philosophy to view these expenditures as investments.
"Early childhood education has been proven over and over again to provide great benefits to children... So I think we've made the case over and over again, but we don't have a philosophy in our political system of seeing these kinds of expenditures as the investments, which they are."
-Hillary Clinton
The Impact of Social Media and AI on Society
Clinton expressed concern about the negative impacts of social media on children and teens and discussed the potential challenges AI might bring. She emphasized the need for regulatory guardrails to prevent the harmful consequences observed with social media from repeating with AI.
"I am very worried that we're going to make the problem even worse, and we're not even going to understand where it's coming from, because with an age of deep fakes, of clever applications of artificial intelligence that manipulate you without you even knowing you're being manipulated, it seems like social media on steroids to me, in terms of the potential.”
- Hillary Clinton
International Approaches to Education
Clinton highlighted the approaches of European countries to early childhood and family support, suggesting that the U.S. could learn from their commitment to alleviating parenting burdens. She advocates for increased investment in child development and support for families.
"I think other countries, particularly our peers in Europe, really have a much better understanding of the need to invest in early childhood, child development, support for parents and families... We need both a change in commitment and a change in investment, so that individuals do what they have to do, and collectively through government."
- Hillary Clinton
Curious to Learn More?
You can listen to our full interview with Hillary Clinton, as well as interviews with many other edtech founders, investors, and thought leaders at The Edtech Insiders Podcast! Check it out, and as always, we’d love to hear what you think!
Our latest reporting on funding, mergers, and acquisitions comes from Matt Tower’s publication EdTech Thoughts. Matt does an incredible job of covering the latest funding, news, industry updates, and more! If you love Edtech Insiders, be sure to subscribe to Matt’s newsletter as well.
