ETCH Weekly Update 9/20/23
The Story of Byju's
Hello!
I hope that many of you enjoyed Sunday’s edition of Weekend Reading.
This week’s Weekly Update provides analysis of 5 recent EdTech funding rounds. Additionally, I have included a proposal for the narrative arc of a prospective Byju’s TV drama — in case any of you know Aaron Sorkin or Shonda Rhimes.
Additionally, the Weekly Update will be renamed the Funding + M&A Update starting next week. The paid newsletter will continue to explore topics beyond financial transactions, but I am making this change so that it is easier to differentiate the free newsletter (Weekend Reading) from the paid newsletter (now known as Funding + M&A Update).
It will also soon be easier to opt in and out of the different newsletters in the ETCH ecosystem (Weekend Reading, Funding + M&A, Jobs of the Week, and Announcements).
Please let me know if you have any questions! On to the update.
Funding / M&A
ELSA raises $23M / US, Language Learning / UOB Venture Management, UniPresident, Aozora Bank, Vietnam Investments Group, Development Bank of Japan, Gradient Ventures, Monk’s Hill Ventures, Global ventures: San Francisco-based ELSA helps users learn English without a human instructor. The company serves a global audience, but most of their users are in Southeast Asia (where many of the company’s investors are from and/or focus their investing efforts). The company joins a growing collection of at least 6 language learning apps to raise venture funding this year (including 3 announced this week!). It is not necessarily surprising to see language learning apps benefit from the AI boom, but does feel notable.
Mathpresso raises $8M / South Korea, Tutoring / KT, Google, GGV Capital, Goodwater Capital, Softbank: Seoul-based Mathpresso offers a tutoring bot to help students with their homework. This funding round was mostly strategic to bring Korea’s largest telecom provider, KT, onto the cap table; the company previously raised more than $100M across several funding rounds. The funding from this round will be used to expand operations into the US and train a proprietary large language model (LLM) that, the company posits, will be less hallucination-prone than ChatGPT.
Correcto raises €6.5M / Spain, Language Learning / Octopus Ventures, Carya Venture Partners, River Park Ventures: Madrid-based Correcto is very similar to a Spanish-language version of Grammarly (which does not yet support languages other than English). / ETCH Assessment of the deal by Charlotte Jones
Swap Language raises $2.15M / Denmark, Language Learning / Mediahuis Ventures, Sparkmind: Aarhus-based Swap Language helps international employees acclimate to new countries by teaching them the local language through a combination of video, exercises, and live lessons taught by humans.
Databits raises $600K / Mexico, Upskilling / 500 LatAm, Buentrip Hub, Stonks Fund, BVC, Telefunken Capital, CREAS Ecuador, Winnipeg Capital: Mexico City-based Databits builds simulations for upskilling retail banking and other retail professionals. The funding from this round will be used to continue building new simulations and expand go-to-market efforts to more countries in Latin America.
The Story of Byju’s
Context: In my previous | analyses of Byju’s, I have tried to focus on the company’s strategic errors, without spending too much time examining or commenting on the overall narrative of the company. Given the volume of information that is now available, I thought it would be a good time to take a step back to try and understand how the company got to where it is now. But once I got started, I felt like I was describing the plot of a television drama. So I decided to lean in and tell the story of Byju’s as if scripted for a streaming service. I hope you will humor me.
As the series begins, we meet our founder, the son of two teachers in rural South India. He coasts through his schooling, graduating college without distinguishing grades. He then moves to a big city for an engineering job.
Our founder does have one thing going for him: an uncanny knack for high scores on standardized tests. So when he flames out of his engineering firm, he starts tutoring students to make ends meet.1
As it turns out, he is an incredible tutor. His lessons literally fill 20,000-seat stadiums, elevating him to a rockstar status that is hard to comprehend. His students are his life, so much so that he ends up marrying one of them and making her cofounder of his eponymous company.
A venture capitalist (ideally Justin Timberlake) sits in on one of his lessons. Afterward, he approaches our founder with the groundbreaking question, “Have you considered building an app?”
The app brings a new level of success to our founder. He becomes a household name in India. Mark Zuckerberg (ideally reprised by Jesse Eisenberg) calls to tell him he is changing the world, and invests millions of dollars in his success.2 Sequoia Capital, one of the most lauded investors in the world, shows up at his door asking to write a check. He spends more than one hundred million dollars to buy a company in the US.
The global pandemic hits. The business goes into the troposphere, seeming to defy the laws of physics. Buoyed by zero-interest-rate bankers who lend the company $1.2B to move up in line for what they expect to be a monster IPO, our founder goes out and spends more than $2B acquiring companies all over the world. He considers buying public companies, but can’t make up his mind about which one he wants.
Enter a Rothschild (ideally played by Nick “Cousin Greg” Braun). He wants to put $160M into the company.
But, weirdly, none of the other VCs have heard of this guy. For the first time in the company’s history, investors show skepticism. The Rothschild money never comes through.
It turns out the “Rothschild” was actually a Dodelson and he has gone back to live with his mom - an EdTech founder of some acclaim herself - in Lakewood, New Jersey.
Our founder is on edge. The company’s auditor, Deloitte, refuses to sign off on the company’s financial statements. A report comes out alleging that the company’s door-to-door sales teams routinely coerce Indian families into contracts they can’t afford. Our founder personally borrows $400M - collateralized by his shares in the company - to finance most of the broken funding round himself.
Feeling lonely, he takes himself out for breakfast at an IHOP in Miami. He meets a friendly hedge fund manager named William Morton (ideally played by Zac Efron), who regales him with tales of shorting BOTH Brexit and COVID.3 Our founder finds $500M in the company treasury to give, sorry, invest in his new friend.
He walks out of the IHOP with a smile, heading to the airport for a flight to Qatar.4 When he lands, he convinces the nation-state’s sovereign wealth fund cut him a check for $250M. The fund goes above and beyond the money though. Lionel Messi (ideally played by Lionel Messi), whose club team is the Qatari-owned Paris Saint-Germain, shows up to the World Cup (coincidentally in Qatar) with our founder’s name on his jersey. Next, our founder attends the World Economic Forum at Davos with his wife as a VIP. They headline a session at the Qatar Economic Forum.
Alas, the Qatari money is not enough to shore up the company’s finances. The company starts laying employees off - first hundreds, then thousands (and then more thousands).
Deloitte starts asking questions for the second year in a row, frustrated that the company won’t even share their financial statements (let alone have them audited). The Indian Enforcement Directorate raids the company’s offices for foreign exchange violations. The lender for the company’s $1.2B loan gets angry at the company’s attempts to avoid loan payments. Someone, somewhere, finds out that our founder’s hedge fund friend in Miami is 23 years old with little-to-no actual work experience.
A dramatic board meeting pits our founder and the Qatari soverign wealth fund against representatives from Mark Zuckerberg’s foundation (CZI), Sequoia, and Prosus (another globally-renowned VC). Our founder survives the meeting with his CEO role intact, but Deloitte resigns as the company’s auditor and CZI, Sequoia, and Prosus immediately quit their board positions. Prosus publicly lambasts the company.
While embarrassing, it looks, briefly, like many obstacles are now cleared from the company’s path. Except for the company’s debt lender, who starts a fight for control of the company’s assets.
His back finally pushed against the wall by the US legal system, our founder is forced to start selling off his empire, piece by piece.
~~~~
And that, my dear readers, is an only slightly fictionalized version of the story of Byju’s up until now.
If you asked me for a dramatic ending, I might show our founder giving up his CEO role to private equity suit. He returns back to his roots, tutoring a small group of kids in a rural classroom in India (though viewers can just vaguely see a Ferrari in the parking lot).
But, having followed this story for long enough to know better, the reality will be that much more epic than anything I could make up.
Question of the Week
Results of last week’s poll: While this poll was, perhaps, more entertaining, a reader made a suggestion that a more rigorous form of the question may have been some version of: “Would you rather bet on a startup or an incumbent to win the early literacy race?” I agree with the reader’s suggestion. If you have thoughts on the answer (or any other question I ask in this space), I encourage you to send them to me!
Zuckerberg likely did not call Byju directly to make the investment, but is quoted as saying, “I’m optimistic about personalized learning and the difference it can make for students everywhere. That’s why it’s a major focus of our education efforts, and why we’re looking forward to working with companies like BYJU’s to get these tools into the hands of more students and teachers around the world.”
It’s not clear that the meeting actually happened in an IHOP, but the hedge fund’s HQ address (which is public information) is at this Miami IHOP. But the two had to meet somewhere, why not at HQ? And that is a very real YouTube interview with the actual “hedge fund manager.”
Again, the timing here is murky, but it fits the story nicely.
More Shonda Rhimes than Aaron Sorkin, but honestly, Chris Smith (Tiger King, Fyre) is who you need
LOL more stories like this. More Sorkin like stories. SBF next?