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Threat calls to employees, stranded students, helpless parents: A bitter lesson in Lido Learning's bankruptcy

Financial creditors of the once celebrated edtech startup may have to take over 80 percent haircut on their dues while shareholders, parents and employees may get nothing

September 12, 2022 / 12:50 PM IST

You have cheated us.

We are definitely going to the police against you and your fraud company. What does bankrupt mean? We want our money back anyhow.

These were some of the messages to which A, a former sales executive at edtech startup Lido Learning woke up to, on the morning of September 9. A day before, Lido Learning had filed for bankruptcy with the Mumbai bench of the National Company Law Tribunal (NCLT).

“At first I thought of ignoring these messages as I was no longer associated with Lido. But those messages were hounding me. Parents were feeling helpless, students were stranded,” said A, who was abruptly asked to resign in the first week of February.

“But I don’t know what to do and how to react. Honestly, nothing is in my hands as such and it’s not like I am getting or I was getting tonnes of money either at Lido. Their (parents’) anger is obvious and whatever little glimmer of hope they had of getting their money back, vanished after reading about Lido Learning’s bankruptcy,” A added.

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A is not the only one. A number of Lido’s former sales executives have been fielding calls, messages, and even threats from agitated parents and students, since the afternoon of September 8, when the news of Lido Learning filing for bankruptcy broke.

Lido Learning, founded by second-time entrepreneur Sahil Sheth has filed for bankruptcy in only a little over three years of its incorporation, a rare instance of an asset-light technology company going bankrupt, according to lawyers.

Lido Learning Factsheet Lido Learning Factsheet

Sheth had first founded Infinite Students, an edtech platform that lets students take school assessments on personal devices, in 2012, which was later sold to Byju’s in 2015. Sheth was then working as Byju’s’ Vice President for a little over 2 years, before incorporating Lido Learning in April 2019.

As Lido Learning now waits for the NCLT to admit its insolvency proceedings, hundreds of employees, thousands of parents, and a few of its creditors are in limbo, hoping to recover at least some of their dues from the company that counts billionaire entrepreneurs including Shaadi.com’s Anupam Mittal and Paytm’s Vijay Shekhar Sharma, Kunal Shah and Ronnie Screvwala, among others as its backers.

Questions sent to Sahil Sheth on Sunday afternoon remained unanswered.

Employees in soup

Most of the executives, who have been getting calls from parents since last week, are themselves scrambling to recover their dues from Lido Learning. According to them, employee dues range between Rs 20,000 to as high as Rs 80,000 each, adding up to as much as Rs 5 crore.

On February 5, over 1,200 employees including those mentioned above, were abruptly told to resign by Sahil Sheth, the company’s founder and CEO (chief executive officer) in a virtual townhall.

Sheth had also told employees that they will not be getting salaries for January as the company was in the midst of a ‘financial crisis.’ Lido had later told employees that they will be getting their salaries in three months as the company was trying to sell its assets to pay back its dues, but most have not got their salaries to date.

Employees have been constantly trying to get in touch with HR (human resource) officials in the company asking for their settlements. “We kept following up, the HR came up with innovative excuses every time,” said U, a former employee at Lido, who was asked to resign earlier this year.

“Most of those who were let go were from the sales and marketing team. They have a basic graduate degree, mostly BCom (bachelor in commerce),” said a former HR official at Lido Learning.

“It is difficult for them to get a job, especially in an environment like this. Most of them also came from small towns and are not financially well off. I still get calls from many asking if they will be getting their salaries and final settlement any time soon and I really feel bad for them,” the official added.

Besides struggling financially, employees like A also said that they have lost confidence to roam around freely in their neighbourhood streets as they fear parents calling them out for cheating. Parents have been following up with these sales executives since February when the news of Lido looking to shut its operations first broke.

Priyanka Pansari, a sales executive, currently working at Ufaber, an edtech company offering courses on domains like IELTS, UPSC and GATE, said that she has not gathered the courage to face parents living in her locality, to whom she had sold Lido Learning’s courses, since March this year as Lido Learning’s classes started getting cancelled.

“You know how in small towns you know everyone personally really well and so many of us had sold courses to our acquaintances. One of the parents has hearing and speech difficulties and it was really hard to explain to them what happened with Lido Learning and why classes were stopped,” said Pansari.

“We had very good family relations with them, but they all now hate me and my father and I have not been able to even apologise to them. I feel guilty for not actually doing anything wrong and it’s not a great feeling,” Pansari added.

The plight of parents and students

Lido Learning runs a K-12 (kindergarten to class 12) platform for students and has mostly targeted tier two and lower tier towns in India, to differentiate itself from larger players like Vedantu and Byju’s. Naturally, most of the company’s subscribers come from lower-tier towns and are exposed to organised tuition classes for the first time.

Lido Learning’s platform runs a live online classes platform for students. The company has raised about $30 million to date from a number of institutional investors including Ronnie Screwvala’s Unilazer Ventures and 9Unicorns among others. The company had hired aggressively over the last two years and had spent nearly half of its revenue on advertising and marketing. Lido Learning had revenue from operations of Rs 11 crore and had spent Rs 5 crore on marketing and Rs 46 crore on employees in FY21 (2020-21).

“We took Lido’s subscription for the first time in mid-2021, during the second wave of the pandemic,” said a parent from Asansol, a small town near Kolkata in West Bengal, who had taken a subscription of Rs 18,000 a year for two years for her fifth-grade child.

“We took it only because of P (a sales executive), as we know her since she was a child. I am not blaming her but we feel scammed. I have paid Rs 36,000 in three tranches since last year for two years but regular classes stopped in March. So technically, I have lost Rs 18,000 straightaway (one year’s fees). I am a single mother and I have studied only till 5th grade. I can’t teach my kid on my own and I don’t think I will be able to put him in another tuition. I want my money back, and that too with interest,” the parent added.

A number of students like the one quoted above are stranded after Lido Learning’s classes started getting cancelled. While some parents are now scared of online coaching altogether, some cannot afford to pay again for their child’s tuition classes.

Another parent said that she had to request her neighbour, who takes classes at her home, to teach her kid for the rest of the year. The parent said that while the neighbourhood teacher has agreed, she feels helpless of having to beg for her son’s tuition classes.

While most classes had started getting cancelled earlier this year, a few are still getting conducted as some educators and tutors continue to work with the company.

Moreover, a couple of weeks ago, Lido Learning’s official LinkedIn page posted a job listing for the role of an engineering manager. The listing currently reflects about 40 applicants for the job. Lido Learning’s website too is active and is shown accepting new enquiries.

Struggle with EMIs

Many parents have also taken zero-interest loans for Lido Learning’s subscriptions. Lido Learning has tie-ups with various financing partners, including some of the biggest like Bajaj Finance, which offer zero-interest education loans to parents. These financing partners pay subscription fees to Lido Learning upfront and then collect EMIs (equated monthly installments) from parents.

Parents are complaining that they have to continue paying their EMIs to these financing partners even though the classes they paid for have stopped. One of the parents Moneycontrol spoke with said that they were told by their financing partner that if they fail to pay the EMI, their credit score might get affected and loan recovery agents could also come to their house.

“We have saved a lot over the years to buy a house and the plan was we would take a loan next year,” said the parent.

“We were told that we might not get any more loans if we fail to pay the EMIs and someone from the company might also come to recover the loan. Here in small societies, it’s embarrassing if loan recovery agents come, so we are in a way we are compelled to continue paying the loan even as classes had stopped long back,” the parent added.

The parent further said they have pushed back their plans of buying a new house as they are paying EMIs for Lido Learning’s subscriptions, while also having to pay fees for their kid’s new tuition classes.

A senior official at a top education financing platform explained that in cases like these, the edtech company has to notify the financing platform to stop collecting EMIs as the subscriptions stand cancelled. The official said that if the edtech company does not notify, the parent’s name goes as ‘defaulter,’ which in turn hits their credit score.

“It all mostly depends on the clauses mentioned under contract, but broadly speaking, we can’t afford to lose money. We will have to collect EMIs from parents, it’s between them and the edtech,” the official said.

“I genuinely feel bad for parents in situations like these but unless we get notified from the edtech company, we can’t cancel their EMIs. If the edtech company notifies us, then we can stop collecting EMIs from parents and rather collect it from the edtech company, as we have paid money to them on behalf of parents,” the official added.

What next for Lido Learning?

With all of Lido Learning’s stakeholders, right from parents to employees to investors to creditors in limbo, what happens next with the company once the NCLT admits its insolvency plea will be something to watch out for.

When Sheth had told employees in February that the company is winding up its operations, he had also told them that he will be scouting for buyers, including some of the biggest edtech companies including Byju’s, Vedantu and LEAD. Reportedly, Reliance Industries, too, was in talks to buy Lido Learning. However, the deals seem to have fallen through, leading Lido Learning to file for bankruptcy under the Insolvency and Bankruptcy Code (IBC).

Once the NCLT admits Lido Learning’s plea, the resolution professional (RP) will look to restructure the company and scout for a buyer and if the restructuring also falls through, the RP will look to liquidate the company. However, the RP might also choose to go for liquidation straight away after looking at Lido Learning’s overall financials, an insolvency lawyer told Moneycontrol.

Lido Learning 1209_001

If the RP decides to go for liquidation, he will be selling all of Lido Learning’s physical assets and its IP (intellectual property) to pay off its dues. Lido Learning’s financial creditors will be having the first right over the money. These financial creditors will be mostly taking a huge haircut, which could also be above 80 percent of their dues, according to the lawyer.

Once Lido Learning’s financial creditors get their money, if they get any, Lido will be paying off dues to operational creditors, which in Lido Learning’s case will be vendors who have sold content to Lido, but are yet to get money for it. Then the preference will be given to Lido Learning’s subscribers to repay their subscription fees on a pro-rata basis and finally, employees might get their salaries. However, the lawyer said that parents and employees are unlikely to get any of their dues from the company.

Moreover, shareholders, including preference shareholders of the company are also unlikely to get anything back after liquidation as software companies do not have much other than IPs and basic assets like computers, chairs and desks to sell, the lawyer explained.

“It’s a long process, it’s not like the NCLT is going to admit claims tomorrow itself. There are much larger companies in the queue,” said the lawyer.

“It is going to be painful for all the stakeholders and in this case, it will be more evident as direct consumers and employees are involved. It will be hard on them but they should not keep any hope from liquidation and should move on. It’s hard, but it is the fact,” the lawyer added.

The bankruptcy of Lido Learning, once a celebrated startup with as many as 90 investors on board, is daunting for almost everyone associated with the company and underlines the sorry situation at some of the startups in India, which is currently the world’s third-largest startup ecosystem.
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