Will Byju’s Downfall Affect the Indian Ed-Tech Startup Ecosystem?

What happened? 

Ed-tech giant Byju’s is in the news once again after three of its board members handed in their resignations. The three members were representatives of venture capital firms Peak XV Partners, Prosus and the Chan Zuckerberg Initiative. This development comes when Byju’s is already caught in court cases with lenders, loan defaults, and delayed filing of its financial results. Previously, Deloitte, an international accounting firm, resigned as the company’s financial auditor after it found several irregularities in Byju’s finances (Read our previous coverage on Byju’s here).

Why does it matter? 

India is the second largest market for e-learning after the US. It’s currently valued at $6 billion and expected to grow to $10.5 billion by 2025, according to an estimate by Blume Ventures. Byju’s, India’s largest ed-tech company, faces legal disputes over a $1.2 billion term loan in the US. According to the ASK Private Wealth Hurun Indian Future Unicorn Index 2023, India added only three unicorns in 2023. For 2022, the figure was 24. Amid these developments, many are worried about the future of the Indian-ed tech startup ecosystem. 

What are the arguments from both sides? 

Side 1: It will affect the Indian ed-tech startup ecosystem: 

• Destruction of reputation: Byju’s fiasco will scare big global investors of Indian startups. If the most valued startup in the ed-tech sector delays its financial details and defaults on loans, it might raise a red flag for anyone planning to invest in Indian startups.

• Government regulations: Byju’s competitors also worry that following the series of developments with Byju’s, the government might start regulating the ed-tech sector like the Chinese government did two years ago. In 2021, the Chinese government banned out-of-school learning outfits from earning money and all foreign investments in the sector. Though the Indian government is less likely to take such severe measures, any form of regulation from its side will threaten the autonomy of the ed-tech companies, eventually stunting their growth.

• It will trigger consolidation and layoffs in the sector: Byju’s has been on an acquisition spree, buying up several domestic and international ed-tech companies in the past few years. However, some of these deals have been fraught with challenges, such as the integration of WhiteHat Jr, which faced allegations of misleading marketing and poor quality of service 3, or the delayed payments to Aakash Educational Services, which led to a dispute between the two parties. Byju’s has also laid off about 3000 employees in the past year, citing performance issues and business realignment. These moves could indicate that Byju’s is facing financial and operational difficulties and is trying to cut costs and streamline its business. This could hurt the sector, reducing competition, innovation and employment opportunities.

Side 2: It will NOT affect the Indian ed-tech startup ecosystem: 

• Market cycle: Though investment in ed-tech startups has dropped, things might not be the same forever. Market forces can catapult and the startups might see a brief funding boom, helping them set their finances in order. 

• The competitors: The downfall of a single company doesn’t mean the downfall of the entire ecosystem. Other ed-tech startups like Unacademy, Vedantu, and Toppr could benefit from the public erosion of trust in Byju’s and innovate their products and services to capture the market. This means that the ecosystem will continue to thrive in one way or another. 

• India’s potential: Despite all recent developments, one can’t ignore that India’s potential remains compelling. It has a sizeable market, high-quality founders, and the startups have shown prompt integration of technology in their operations. The ed-tech startups like Byju’s are at a nascent stage of building out the market and testing different business models. The ed-tech startup ecosystem needs the right people to tap into India’s unrealised potential.

What’s next? 

Byju’s is currently in the process of raising $1 billion from new prospective shareholders. It seeks to close the round within two weeks. The success of this fundraising round will help founder Byju Raveendran retain his control over the company. In a virtual meeting held on June 29th, Raveendran assured his employees that things weren’t as bad as they had been reading in the media and also promised to liquidate non-core assets if the company failed to secure funding.