Why Byju’s is struggling to close its $800 million funding?

Among the various unicorns in India, the one company that never had any problem raising funds to bankroll its growth was Byju’s. Conceived as an online training and education initiative, Byju’s has become the de-facto manifestation of the Edtech story in India. Even as it made hay amidst the lockdown and enriched its valuations, the tide appears to be turning. For the first time, Byju’s is actually struggling to raise $800 million in funding after Sumeru Ventures and Oxshott delayed the release of the $250 million they had committed to invest.

The company has been rather ambassadorial in its responses and has attributed the delay in the fund flow to “macroeconomic changes”. However, Byju’s is confident that the funding from Sumeru and Oxshott should come in by August 2022. Ironically, Byju’s founder, Byju Raveendran has already brought in his committed investment of $400 million, which is half of the total funding in the current round. Post this funding operation, the promoter group will be able to increase its stake from 25% to 29% in the Edtech major.

But the bigger question is whether Sumeru and Oxshott have concerns about the valuations. In its last funding round, Byju’s was valued at about $22 billion. However, after the frenetic sell-off in the Indian digital and Edtech plays, the venture financers are wary of committing funds at such lofty valuations. Sumeru and Oxshott together have committed about $250 million, which is a tad over 30% of the total funding commitment. Interestingly, Byju’s had also delayed releasing funds for its Aakash purchase deal, but has just released the same.

Perhaps, one concern that the investors do have is that Byju’s has not filed its audited financial statements for the last two financial years with the Registrar of Companies. Byju’s has committed to complete this formality in the next 2 weeks. However, there are also concerns over the rapid reduction in manpower. Byju’s group company Whitehat Jr recently laid off 600 employees.  At the same time, Byju’s continues with its rather aggressive inorganic strategy buying up US based Edtech firm, 2U, for a whopping $2.4 billion.

Markets find this a tad worrying amidst the already growing funding problems for the digital and Edtech plays. It was always believed that Byju’s would not really have any problem funding its growth plans, but that does not seem to be the case. Recent developments have come at a time when a global recession is rearing its head and big ticket funding for start-ups is drying up, especially in the edtech sector. The last straw for the edtech companies came when offline schools decided to resume normal classes, taking away their charm.

Like the ecommerce companies discovered the melodies of brick-and-mortar set-ups, the edtech companies are also now suddenly discovering the merits of offline tuition centres. It is not just Byju’s, but even competitors like Unacademy and Vedantu are adopting a similar strategy. But that is going to be a capital intensive affair. The bottom line is that there has been a 37% dip in venture funding for start-ups in India for the June quarter on a sequential basis. That is likely to keep the edtech companies under pressure on the funding side.