Byju's Troubles Have Made Edtech A 'Stigmatised' Word

Byju's troubles couldn't have come at a worse time for India's edtech startups.

Investors have already increased scrutiny as they focus on profitability, unearthing questionable practices at India's privately held tech-backed ventures like GoMechanic and Mojocare. They will be even more selective now.

"This could become an important consideration in future funding rounds of other ventures, which got rich valuations in the funding boom," according to Deepak Joyce, founder at JoyceLaw, a boutique law firm focused on the startup ecosystem. "I anticipate that investors would start monitoring their investee companies more closely, especially on financial discipline and governance."

Unacademy, Byju's edtech peer, is already seeing an impact. "Any new employee I’m interviewing, any new investor I speak to, there’s some sort of negativity about edtech," Gaurav Munjal, Unacademy co-founder and chief executive officer, said on Zerodha co-founder Nikhil Kamath's podcast about two weeks back.

Byju's, once the poster boy of India's online coaching industry, is now in the spotlight for weak corporate and financial governance, debt default, searches by the Enforcement Directorate and a potential a probe by the Ministry of Corporate Affairs.

The troubles stem from exuberance during the pandemic when investors chased anything that aided digital delivery. As schools went online, the likes of Byju's saw a greater opportunity in teaching kids music to coding. Its parent Think & Learn Pvt. acquired a string of ventures from Aakash Educational Services and White Hat Jr to Toppr.

But as schools reopened after the lockdowns ended, investors turned cautious as global rate hikes to contain inflation increased the cost of funds. Startups suffered with even India's new-age companies that went public seeing their valuations tumble. Edtech startups such as Udayy and Lido Learning shut operations in the past year due to funds crunch.

Now, increased scrutiny of Byju's by regulatory authorities can instill uncertainty and caution among stakeholders, potentially influencing the overall sentiment and investment climate, said Gaurav VK Singhvi, an angel investor and co-founder at We Founder Circle.

The founder of an edtech startup, speaking on the condition of anonymity out of business concerns, said it has become extremely difficult to raise funds as 'edtech' has become a stigmatised word. The moment he introduces himself as an edtech founder, the conversation with an investor ends there, he said.

Of the funding of about $2.5 million last year, the founder said the venture has only received $1 million.

After the failures of GoMechanic, NestAway and Mojocare over alleged fund diversion, the due diligence process has become lengthy, said the founder of a Gurugram-based startup. All reimbursements, including how much money a founder has transferred from personal account to the company are all coming under scrutiny, which was not part of the due diligence process earlier, he said.

The recent troubles have also prompted the Indian Venture Capital Association and Deloitte to jointly launch a startup governance playbook.

According to Singhvi, Byju's default on a US-dollar loan and the allegations of predatory tactics by lenders may tarnish its image, making it harder to attract new investments or secure future funding.

To ensure its long-term survival, he said, Byju's must effectively address the legal loan battle, manage its financial obligations, rebuild investor confidence, and sustain its position in the competitive edtech market. "Byju's will need to navigate these challenges skillfully to overcome them and secure a viable future."