Byju’s raises $250 million and puts a smile on Edtechs

It looks like the funding gods are finally smiling on the Edtech sector in general and Byju’s in particular. Byju’s has just raised $250 million through a rights issue from existing investors, but what is perhaps gratifying is that it was done at a $22 billion valuation. That is almost the same as what it had done previously, but it is gratifying that it has not lost any value even amidst all the recent tumult in edtech sector and the massive losses reported by the company for FY21. Qatar Investment Authority, which had first invested in Byju’s in 2019, was an aggressive participant in the rights issue of Byju’s.

To quote Byju Raveendran, “Byju’s has entered the sweet spot of its growth where the unit economics and the economies of scale both are in its favour”. What this essentially means is that incremental capital invested by the company will go into profitable growth. Paying to buy customer loyalty and customers was done and dusted and Byju’s may not have to spend much more that front. However, it would still have the big challenge of turning around to profits and that it expects to happen in FY23. The irony is that it had reported a net loss of nearly Rs4,600 crore for FY21, and the results were declared 17 months after year ending.

For FY22, Byju’s has promised to be more timely in disclosing results. However, the turnaround to profits in FY23 would only be credible if the company really sees narrowing of losses in the FY22 fiscal year. For that we have to wait for the FY22 results to be announced. But the one thing that Raveendran can take solace from is that some of the old time investors have stuck by the company and even reiterated their faith in the latest round. Apart from QIA, Byju’s also has the backing of marquee names like Owl Ventures, Sequoia Capital, BlackRock, Tencent, Naspers, CPPIB, General Atlantic, Tiger Global and Lightspeed.

To impress upon investors that Byju’s meant business, the company has just come out with a slew of measures to optimize its operations and turn around to group-level profitability by March 2023. Some of the measures include laying off 2,500 employees (around 5% of its workforce), integrating its acquisitions, reworking sales machinery and hiring an army of highly competent teachers. Apart from the content initiatives, it is also investing heavily in its marketing heft by enhancing its marketing budget, especially towards its overseas markets. The sales teams would also focus on more effective lead conversions.
The problems for the company in particular and the sector in general are far from over. First, the business model needs profits and either the valuations should be justifiable or the valuations have to be toned down. The financial numbers of FY21 are far from encouraging, which is why FY22 numbers will hold the key. But the biggest challenge for Byju’s will be to integrate all its top dollar acquisitions done in the last 3 years and script a credible story that appeals to the highly sophisticated private equity audience. That would be the building block before Byju Raveendran seeks an audience with the mavens of Dalal Street.