It has been a difficult year for India’s most valuable startup. Once the poster child of the edtech sector, Byju’s has been drawing ire on multiple fronts.
Questions around its aggressive sales practices have resurfaced, stakeholders got spooked because of a yearlong delay in filing its FY21 annual report, a large number of layoffs happened and its fundraising engine was reported to be sputtering.
“The last 6 months have been really tough and humbling... It can’t be tougher than this. And if this can’t break us, I can tell you nothing else will,” Byju Raveendran, founder of the eponymous $23-billion company, told Moneycontrol over a Zoom interview.
While he was quick to counter misgivings about the company’s accounting practices, its funding troubles and sales machinery, the teacher-turned-entrepreneur maintained a constant smile. He complained about the company’s actions being misunderstood.
Byju’s has declared a revenue contraction of 14 percent to $327 million in FY21. It said that a significant part of the growth in its business was not captured in the revenue figure due to a change in accounting practices, and almost 40 percent of the revenue was deferred to subsequent years.
“No investor has sold our shares in the last six months despite all that has been said about the company. This goes to show we have been doing things right,” Raveendran said during the interview.
Here are the edited excerpts from the conversation:
How has it been to field so many questions from all quarters?
The last six months have been really tough and humbling. But I’m an eternal optimist and it’s been a very good learning experience. It can’t be tougher than this. And if this can break us, I can tell you nothing else will.
What were the learnings that you have had?
The learning has been from all sides—auditors, investors, lenders and media. I can give you a list of 10 myths about what has been spread about us.
There has never been a fraud. There has never been an instance of auditors wanting to resign. We have learnt the hard way that we have to improve the finance function, which we have started doing already. But it’s almost like going from one extreme to the other extreme because, at the end of the day, we are a private company. Even public companies don’t go through this level of scrutiny.
Are you hiring a chief financial officer given the delay in filing FY21 financials?
Yes, we are strengthening the finance function, which includes hiring a global CFO. We are also well-prepared for the future. Earlier, we were a single-market, single-product business. Now, we are a multi-geography, multi-product company.
Why did it take such a long time to file the FY21 results?
There were three reasons. First of all, it took longer to travel and audit subsidiaries because of Covid. Then there were multiple acquisitions and the added complexity as a consequence. The third reason was a change in how we do revenue recognition. That’s why the audited financials will show no growth between FY20 and FY21.
But you will also see that there is a deferral of revenues to subsequent years. This partly happened because when Covid started, there were shipment delays to consumers, and so we gave them streaming access. Another reason for the change in revenue recognition was credit-based sales as the EMI (equated monthly instalment) payments will happen over a period of time.
When will you file your FY22 financials?
We have not decided that yet. Investors and lenders don’t care. They were anxious thinking because of the media narrative as people started calling us fraud and things like that. It’s nonsense. Investors are very happy now and relieved.
And speaking objectively, not a single investor has sold their shares in the last six months while some of them are sitting on 50X or 100X returns. That’s a real indication that investors see us winning.
You have said that FY22 revenues would be around Rs 10,000 crore. Are those revenues audited in the new recognition system? Otherwise, will that be a fair comparison?
No, it is not audited. That’s the number reported to the auditors. The delta due to the recognition change was 40 percent in FY21. The EMI sales were much larger during that period because of Covid. I can say that whatever the audit number for FY22 is, it will be a huge growth over FY21.
What about losses?
Our FY21 loss was around Rs 4,500 crore. This was on account of some of the fast-growing but loss-making acquisitions we made, the deferral of revenues and also because of marketing and sales costs, taxes and other direct costs.
How has the performance been of the companies you acquired?
The two biggest acquisitions—Aakash, which was a billion-dollar deal and Great Learning which was for $600 million—have shown a strong performance. Both of them have outperformed and have become 2X in terms of size within 12-15 months. WhiteHat Junior has been a challenge on the cost side. Solving its customer acquisition cost is the only business challenge we have.
How much of the projected Rs 10,000 crore revenue of FY22 is from organic growth versus acquisitions?
Around two-thirds of that revenue is from our core K-12 business in India. Aakash’s revenue will be included in FY22 financials. The other acquisitions such as Great Learning and Epic will mostly be included in the year after.
Part of Sumeru Ventures and Oxshott’s investments are yet to come as we understand. There were reports that a part of the payment to Blackstone for the Aakash deal hadn’t happened. Also, it was said that you couldn’t line up financing for the acquisition of 2U. Is there a cash shortage?
2U is an acquisition offer we made after getting a $2.4 billion financing commitment from one of the largest banks. As it is a public company, we can’t even make an offer before having the financing in place. We didn’t get the deal. But 2U is still not sold. It is still available. The Blackstone payment is something that is agreed upon between the two of us based on regulatory guidelines. It’s a joke when people say that we are running out of cash.
Now, the $300 million from Sumeru and Oxshott is not coming, but that is not our mistake. But who cares about $300 million? I can raise $300 million in a week.
Are you raising a new $500-million round from sovereign wealth funds?
During the last six months, I did not approach any investors. I have started reaching out to investors only in the last few weeks. It’s not like we are out to get $500 million. We are always in the market to get like-minded investors so that we can buy like-minded companies. We have never raised money when we needed it. If you do that, you won’t be able to raise money on your terms.
The fact that we have raised money for common stock as yet, and we don’t give liquidation preference, is because we don’t raise money when we need the money.
How much of a cash runway do you have?
If we don’t buy companies, we don’t need a lot of cash. Most of our core businesses are already at break-even or profitable. We are burning cash only in WhiteHat Junior. We are making new investments in 600 centres which will require Rs 1,000 crore. That is an investment. The question of the runway does not arise.
There is also a sense that you went from teacher to dealmaker, with a single-minded focus on valuation. Will Byju’s be less of a valuation-focused engine, do you still believe you can justify the $23-billion valuation?
The $23-billion valuation is not based on FY21. It’s based on FY23 value. It’s always based on the forward multiple. In FY21, we were raising funds at $6-7 billion. We raised at $22 billion only because you raise money based on forward multiple.
I still spend 90 percent of my time not raising money. Raising money is easy. That doesn’t take any time. Raising money is the easiest thing to do when you are building a business with an intent to make it last for decades.
In the current environment, we don’t need to raise that much money. We are raising money from a very few select investors and we are not going to the broader market. We are going to the existing investors, some of the sovereigns, that’s easy. They don’t believe the media narrative, to say the least. Because if people believed the media narrative, we would have been dead.
We raised money from 71 high-quality marquee investors and not a single person has sold in the last six months despite this much noise.
People will not sell because they’re sitting on 50x 100x return. (There has not been) a single top-level exit in the last six months. And I’m saying that if people don’t leave us in these times, I’m telling you they will never leave. We also plan to hire 10,000 teachers over the next 18 months.
What next for Byju’s, in terms of business, listing plans? Will you be spending more time abroad to integrate your overseas acquisitions and operations?
Even today 75 percent of our businesses are India-based. There is another media narrative and a false one that says the India business is getting saturated, so now Byju’s is focusing on the US.
Now new markets and new initiatives require initial effort, in the strategy phase. I get undue credit for all the good things we do and I also get undue flack for everything wrong, which is fine, no complaints.
I’m involved wherever required, but the last six months have been tough, like I’ve hardly slept. But there is a part of me that enjoys the challenges. Because there’s tons of fun in proving everybody wrong, because I come from where I tell people that put me anywhere, I will come out of it.
How much of your revenue is due to tablet sales versus selling the actual courses?
It is less than 15 percent of our costs. In our financial reports, auditors used to write sales of tablets and SD cards, which was wrong. They have changed it this year to the sale of edtech products. Less than 5 percent of our total revenue is tablet cost. It’s included in our direct cost. Otherwise, we don’t have any other direct cost except the SD card costs and the payment costs.
You have also been criticised for securitising your trade receivables.Every top company does that. If you do it right, it is a financing marvel. The fact that people are willing to value your receivables and willing to lend at low interest against receivables clearly shows confidence among the financing partners. If companies can do a securitisation, that means they are a solid business for sure. But that’s not because there is a dire need for money. It is one of the cheapest forms of debt. Cumulatively, we have securitised around Rs 1,000 crore over the last three years.