Edtech firm Byju’s has been in the news for quite some time now. The cash-strapped edtech firm has launched a rights issue aimed at raising up to $200 million, according to a notice sent to its investors, though this round of fundraise will see drastic cut in valuation of the edtech firm. It will happen at a valuation of $20-25 million, which would be the biggest valuation cut in the Indian startup ecosystem. Notably, Byju’s was once the most valued Indian startup with a combined valuation of $22 billion. So, the cut of around 99 per cent from the peak valuation is both deep and drastic and is bound to raise many questions not only on the functioning of Byju’s but also on other startups that have seen sharp plunges in their valuation. Though valuation is a function of market dynamics, volatility in the Indian context has been drastic. Many startups had raised funding in recent quarters on lower valuation. At a time when the funding winter is extending beyond normal predictions, such incidents indicate the rot in the system.
Firstly, several domestic startups had gone overboard on their expansion plan when the going was good. When funding was not a constraint, many pursued unbridled expansion plans without taking into account the profitability factors. In this process, the basic tenet of the business entity was compromised. Secondly, unlike any product-focussed firm, service-based business takes time to make a mark. This is very true in the education sector. Educational institutions build their reputations over decades through quality education and better service delivery. To think that any institution or edtech firm can achieve that standing in the market over a few years is far from the truth. In the edtech segment, many domestic edtech firms have tried to build their brand through aggressive expansion and acquisition. But this space has seen rampant mis-selling. Parents have been coerced to take admission on assurances that are not delivered after the enrollment. This has created a trust deficit for several edtech firms.
Last but not the least, market dynamics have changed rapidly in the edtech space, creating much disruption. During Covid, the world moved to digital mode with e-learning taking centre-stage. Many edtech firms had taken this trend to be a permanent phenomenon, which would sustain in the long-run. However, once things normalised, the world has gone back to the old ways of physical classes. As a consequence, big investment bets went awry in the edtech space owing. Though many firms have now pivoted to physical classes through taking over coaching institutions and their earlier investments remained a drag on their balance sheets. Against this backdrop, the pain lingers in the edtech ecosystem. In 2024, things are likely to change for the better in this space as many external investors have come as white knights. Such infusion of capital is expected to improve the financial health of edtechs. Moreover, edtech firms are transitioning to have omni-channel presence. Hopefully, the business sentiment will improve this year.
