Byju’s debt crisis hits investor confidence, sends edtech valuations crashing

edtech, Byju's
The downfall of Byju's, once a titan in the edtech industry, reverberates across India's education technology landscape.

India’s most valuable edtech startup recently defaulted on a $1.2 billion loan, casting a shadow over the booming sector. Byju’s, which was once a darling of investors, has now found itself mired in a serious crisis. There was a time when the success of the company, founded by Raveendran Byju, instilled confidence in India’s edtech sector among various private equity firms, but that confidence has waned.

A few years ago, Byju’s was an unstoppable force in the edtech world. The pandemic further fuelled the startup’s growth as education shifted online entirely. Investors poured capital into the company, driving its valuation to a staggering $22 billion. Byju’s embarked on an acquisition spree, acquiring other edtech companies and competitors.

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However, the tide turned for the edtech giant when it ventured into debt financing. In November 2021, it secured a loan at an exceptionally low interest rate. Additionally, the company made its costliest acquisition yet, shelling out $1 billion for Aakash Institute. Sadly, in just two short years, the loan became a crippling burden for Byju’s. As a result, the company’s valuation plummeted to a range between $5.1 billion and $8.4 billion. Eruditus, a SoftBank-backed upskilling unicorn, also faced a 10% markdown by a US-based asset management company as of March 2023.

Troubles brewing for edtech startups

Byju’s is not the only edtech startup to have lost its way recently. While Indian startups in general have been burning through their investors’ money, Unacademy, another rising edtech player, has witnessed a plateau in its core revenues post-Covid. Demand for online learning, especially in the K-12 and test preparation segments, dwindled as schools, colleges, and physical tuition centres reopened. This downturn in revenue growth has led to a decline in the valuations of edtech companies, with investors becoming increasingly disenchanted with India’s sector. When the sector’s leader falters, it sends ripples throughout the entire industry.

For instance, General Atlantic, which had made substantial investments in Byju’s, has distanced itself from further investments in Indian edtech firms. The private equity investor has even declined opportunities from at least two edtech companies since the start of the year. They have implemented a primary filter for potential investments, scrutinising whether a company genuinely qualifies as an edtech firm. General Atlantic is just one example of the growing unease among investors triggered by Byju’s. Funding for the nation’s edtech industry has shrunk to a fifth of what it was in the previous year.

With investors developing cold feet about India’s edtech sector, there has been a significant decline in investments. In the first eight months of 2023, edtech startups raised a mere $400 million compared with $2.4 billion in 2022 and over $4 billion in 2021. These 2023 figures even lag behind the pre-pandemic levels of 2019.

Nonetheless, analysts remain optimistic about the potential of the edtech sector to bridge the learning gap in the future. Venture capital investments in India’s edtech sector have surged 32-fold over the past 12 years, growing from $500 million in 2010 to $16.1 billion in 2022. The sector is projected to reach $30 billion by 2031.

The Indian edtech sector still boasts of a substantial market, offering a massive opportunity for companies with strong revenue growth. These companies must find ways to harness the potential within India’s multibillion-dollar market. Edtech firms also need to explore opportunities in niche sectors like upskilling, which continue to attract investors.

In the first eight months of 2023, investments in higher edtech have declined by 13% compared to the entire previous year. Upskilling segments are also witnessing robust growth, particularly in artificial intelligence powered courses.

At a time when the future of the edtech sector hangs in balance, companies like PhysicsWallah and Unacademy are placing significant bets on upskilling and higher education. PhysicsWallah, which achieved unicorn status last year, is also seeking to raise at least $250 million. Meanwhile, Byju’s is endeavoring to rebuild itself through a series of measures, including the appointment of a new Head of Human Resources and the onboarding of industry veterans like Mohandas Pai and Rajnish Kumar as Board advisors.

The revival of the edtech sector hinges on whether the industry can address the concerns of its stakeholders, with Byju’s revival playing a crucial role in this equation.