Byju’s, the Indian edtech startup that reached a valuation of $22 billion during its fundraising in March 2022, has experienced a significant downturn in its valuation. BlackRock, the world’s largest asset manager and one of the early investors in Byju’s, made its third markdown in 2023, reducing the valuation to $1 billion. This represents a staggering 95% reduction in Byju’s valuation over a mere two-year span between 2022 and 2024.
In October 2023, BlackRock assessed the value of Byju’s shares at approximately $209.6 each, showcasing a significant drop from the peak valuation of $4,660 observed in 2022. This information was part of BlackRock’s routine portfolio disclosures, a standard practice among mutual fund investors throughout the year. Interestingly, these disclosures typically lack detailed explanations regarding the rationale behind specific valuation adjustments.
It is important to note that the recent adjustment by BlackRock in the value of its holding in Byju’s is not the first incident; such valuation cuts have occurred previously by BlackRock and another investor, Prosus. However, the latest revision by BlackRock is particularly significant, representing the most substantial cut observed thus far.
In March 2023, BlackRock made a substantial adjustment to Byju’s valuation, lowering it to $11.5 billion. This reduction was followed by another cut in May 2023, bringing the valuation down further to $8.4 billion. Adding to the financial woes, Prosus, holding a significant 9% stake in Byju’s, implemented valuation adjustments. In June 2023, the valuation was revised to $5.1 billion, and by November 2023, it underwent an additional decrease to $3 billion.
The successive reductions in Byju’s valuation do not come as a surprise, considering the edtech company’s ongoing struggle with financial challenges, creating a tough environment for its survival in the next few months.
Last year, Peak XV Partners, formerly known as Sequoia Capital India, conveyed to its limited partners (LPs) the necessity for a significant markdown in the value of its holding in Byju’s. This decision was attributed to the challenging situation arising from a lack of visibility into the firm’s audited financial results.
ED Raids Byju’s
In November 2023, the Enforcement Directorate (ED) made serious allegations against Byju’s parent company, Think & Learn, and its founder Byju Raveendran, citing multiple violations under the foreign exchange law.
The Enforcement Directorate (ED) has served showcase notices to both Think & Learn Private Limited and Byju Raveendran, amounting to Rs 9,362.35 crore. These notices allege violations of the Foreign Exchange Management Act (FEMA) by Think & Learn and Raveendran. The accusations encompass various aspects, such as the non-submission of documents related to imports against advance remittances made outside India, failure to realize proceeds from exports made outside India, delayed filing of documents related to foreign direct investment (FDI) inflows, and the omission of documents regarding remittances outside India.
In April 2023, ED conducted searches and seizure operations at Byju’s three locations in Bengaluru, comprising two business premises and one residential property. During the search, various incriminating documents and digital data were confiscated. The FEMA searches have revealed that the company received foreign direct investment amounting to approximately Rs. 28,000 crore from 2011 to 2023. Additionally, the company remitted approximately Rs. 9,754 crore to various foreign jurisdictions during the same period as overseas direct investment. Notably, around Rs. 944 Crore has been accounted for as Advertisement and Marketing expenses, including the remitted amount to foreign jurisdictions.
In addition to these scrutiny operations, Byju’s is grappling with substantial financial hardships, resulting in massive layoffs, delayed salary payments, and the necessity to sell personal and company assets to repay loans and cover outstanding employee salaries, among other critical measures. Notably, Byju’s urgently needs a substantial infusion, estimated at Rs 500-600 crore, to settle outstanding dues owed to both employees and vendors.
The challenges at Byju’s are compounded by significant departures within its leadership. The Chief Financial Officer (CFO), Ajay Goel, departed from the edtech startup in less than seven months, choosing to return to Vedanta in October 2023. This follows the high-profile and abrupt exits of auditor Deloitte and three key board members in June 2023, raising concerns about the stability of the company’s leadership team.
Notably, Byju’s has faced public criticism from investor Prosus, which publicly expressed dissatisfaction with the company in July 2023. Prosus criticized the company for its perceived lack of evolution and for disregarding the investor’s advice and recommendations despite repeated attempts. This public rebuke from a major investor further underscores the challenges and strains the company is facing both operationally and in terms of investor relations.
After all is said and done, Byju’s seems to be coming to an end. Even though challenges are substantial and seemingly insurmountable, the possibility of recovery or strategic shifts should not be ruled out entirely. Investors, stakeholders, and the company’s leadership may still explore various options, including restructuring, new investment, or other measures to turn the situation around.
