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Byju's is Falling Apart - EdTech Thoughts Weekly Update 6/27
Putting together the pieces from last week's news
I normally write a paid-subscriber-only newsletter on Tuesday mornings. In that newsletter, I provide a longer-form opinion on a few pieces of the previous week’s news. I have a lot of fun writing it and many people enjoy reading it. I’d love to have you subscribe.
However, this week the paid post turned into one longer essay on the turmoil surrounding the world’s most valuable EdTech company, Byju’s. The topic felt too important to put behind a paywall, so I’m sharing it early (Monday night) and with everyone. Paid subscribers, I hope you understand - I promise I’ll make you whole down the line.
With that, let’s spend some time thinking about Byju’s…
Byju’s is falling apart
Context: Byju’s had a tough week. Among other things, the company announced a 1,000-person layoff, had its auditor and 3 board members resign, and had the Indian Ministry of Corporate Affairs announce an inquiry into the company’s business practices.
An old soccer coach of mine had a saying: “don’t compound mistakes.” The lesson he was trying to teach us was that one mistake would rarely lose us a game. But failing to recognize and take responsibility for that mistake could bring the whole team down rather quickly.
What is incredible about the Byju’s story is the lengths the company seems willing to go to avoid addressing their mistakes. I started commenting on this strategy last June, when it seemed like the company tried to counter every story of an emergent financial problem with an amusing-but-also-head-scratching announcements like a partnership with British Airways or a leaked story about a potential major acquisition.
I found Byju’s distraction tactics to be in poor taste then, but figured the company would hire a fancy operations leader - which turned out to be Ajay Goel - and start cleaning things up. I even said I thought Byju’s would remain the world’s most valuable EdTech company at the end of 2023.
This prediction feels increasingly unlikely. Rather than Byju’s acknowledging the (fairly obvious) precariousness of their situation, they let their errors compound. Instead of taking accountability for their problems, they continued to respond to negative press with “nothing to see here, except Neil DeGrasse Tyson!” Two examples of this strategy played out over the past couple of weeks:
Updates to Byju’s product portfolio
What the company announced: custom transformer models for learning. Transformer models are the bedrock of generative AI tools like ChatGPT. Not mentioned, they are enormously expensive to make and operate.
What actually happened: financial firms stop lending for Byju’s hardware sales, forcing the company to finance sales off their own balance sheet.
Why this matters: Tablet sales (hardware!) packaged with Byju’s software are the lifeblood of Byju’s core business.1 But financing these sales off their own balance sheet would be incredibly expensive for Byju’s in good times — I can’t imagine how costly it is for them now. The only thing I can imagine being more expensive? Custom AI models! It is crazy to me that the company would add another capital-intensive business to its portfolio given the overall market and their specific financial situation.
Resignations of Deloitte and 3 Byju’s board members
What the company announced: In an article that included a statement from Deloitte about why they resigned as Byju’s auditor, Byju’s called the resignation a “planned transition.” In the same article, the company said, “A recent media report suggesting the resignations of board members from Byju’s is entirely speculative. Byju’s firmly denies these claims and urges media publications to refrain from spreading unverified information or engaging in baseless speculation.”
What actually happened: Deloitte resigned because they hadn’t even received the books to audit Byju’s 15 months after the company’s fiscal year ended. Furthermore, 3 of Byju’s board members - representatives from Peak XV (fka Sequoia Capital India), Chan Zuckerberg Initiative, and Prosus Ventures (fka Naspers) - resigned. The company’s board is now occupied by the company’s eponymous founder, his wife (also his co-founder), and his brother.
Why this matters: After the 3 board resignations were publicly confirmed, Byju’s quickly changed their tune. Thursday’s “baseless speculation” became Friday’s “need for reconstitution arose as [a] few investors had to vacate the board seat due to their shareholding falling below a minimum required threshold as per our SHA [shareholder agreement].” Byju’s then assured stakeholders that they are “actively working towards constituting a diverse and world-class board.” I will be curious to see who is willing to answer this call.
This week’s grand finale was the report of an inquiry from India’s Ministry of Corporate Affairs.
This is a disaster. It is such a disaster that I have no framework for predicting what comes next other than a legal bill that approaches the cost of building custom large-language models. More seriously, it is such a disaster that it will probably bring down large chunks of the EdTech ecosystem, which is already struggling this year.
What’s so frustrating about all these shenanigans is that they were mostly avoidable. If the company and its stakeholders, had taken a long look in the mirror last summer and said “how do we get better?” they might have found a path forward.
Instead, they doubled down on their distraction strategy. The company sponsored the World Cup and desperately clung to their “world’s most valuable EdTech” valuation, an effort that was ultimately fruitless. And they fought the media, providing statements that were misleading at best, rather than thoughtfully working to rebuild their image.2
The lesson here is not that Byju’s fell apart because they made mistakes. Every company, and person, makes mistakes. They’re not hard to find if you know where to look.
The lesson is that Byju’s never bothered to learn from - let alone publicly acknowledge or fix - their mistakes.3 The company may have continued to scale, but somewhere along the way, it stopped getting better. The end result is a company unmoored, and an industry carried further adrift. With fewer and fewer supporters, Byju’s must now face 2023’s barbarians - distressed debt investors - at their gate.
For US folks, think about this as the difference between buying a Peloton bike outright (~$2000) vs. financing it through Affirm ($60/month)
Zoombombing was, briefly, among the most sensational topics of the pandemic. The company’s CEO saw this and leaned into the problem, acknowledging the company’s mistake and freezing all product development until they felt good about their ability to catch zoombombers. A direct quote: “Clearly we have a lot of work to do to ensure the security of all these new consumer use cases…But what I can promise you is that we take these issues very, very seriously. We’re looking into each and every one of them. If we find an issue, we’ll acknowledge it and we’ll fix it.”
Quite literally, the company defied their local law by obfuscating their financial audit process two years in a row.