A new wave of lay-offs at ecommerce platforms, and the crashing world of Byju’s has brought forth starkly the shriveling up of funding for start-ups. There are many who have grown as a bubble, who now stand exposed having got their core business plans wrong.
The signs were there, but it’s now all happening. Swiggy confirmed it is laying off 400 employees or about 7% of its 6,000 workforce. The company is going in for an IPO later this year, and it appears it is cleaning up.
This is the digital delivery company’s second layoff – last year around the same time it shed 380 workmen. Flipkart too said it was letting go 1,000 employees – about 5% of its 22,000-strong workforce. It’s strange that local boss Kalyan Krishnamurthy said it was a routine, annual cutback,and claimed things were hunky-dory at the company.
Byju’s, that sinking feeling
Meanwhile, the one-time darling of edtech investors, Byju’s, seems to be in its last gasp as lenders filed an insolvency petition against holding company Alpha following a payment default on a $1.2 billion loan.
The company, founded by Byju Raveendran, at one point hit a valuation of $22 billion as its core business – providing online education – thrived in the work-from-home environment of the pandemic. More than a dozen investors from Peak XV Partners to Lightspeed, UBS and Chan Zuckerberg Initiative, thronged to grab a piece of the pie, as Byju’s built strong brand value through acquisitions and a marketing blitz that included becoming India’s cricket team’s principal sponsor.
But as lockdown conditions opened up after Covid-19 abated, demand for its services also abated. Unable toprovide cash flow for its myriad operations, the company struggled to even file its financial report. It was only a few days ago, Byju’s filed its FY2022 financials with the Ministry of Corporate Affairs (MCA) on January 23, almost 22 months after the reporting period ended.
Though its revenue had more than doubled 118%to Rs 5,298 crore in Fy2023 from Rs 2,428 crore in the previous year, its losses ballooned to Rs 8,245 crore from Rs 4,564 crore in FY2021.
Blackrock, US based asset manager, which holds a minority stake in Byju’s, slashed the company’s valuation to $1 billion in October last, a 95% fall from its peak valuation of $22 billion. Currently, the firm’s own valuation is not too much off this mark as it seeks to raise $100 million from existing investors through an issue of fresh shares valuing the company at just about $2 billion.
In recent weeks the company’s promoters were scrapping the bottom of the barrel funding employees’ payroll by pledging the homes of Raveendran and his family. While investors have little recourse to recover their money, lenders are all set to take Byju’s to the cleaners via the Insolvency and Bankruptcy Code.
Both investors and creditors too have to be blamed for this mess. Byju’s arrived on the scene in a blaze as an innovative, online learning model where tutors used out-of-the-box illustrative techniques like a pizza or slices of cakes to solve mathematical riddles. Over 2020 and 2021 the company raised over $5 billion in equity and debt from starry-eyed investors, some of whom valued Byju’s at $40 billion for an IPO which never happened.
Byju’s splurged $1.5 billion in acquisitions, many of which have only deepened its losses. Was there any due diligence? Did none of these investors realize the pandemic conditions would abate changing the conditions for online education?
Things are on a free fall. Creditors have taken hold of the company’s subsidiary in Singapore; other lenders have told a court in Delaware, US that Byju’s had slyly parked $533 million in an obscure hedge fund. With mounting losses, and with few options to raise money, it is unlikely Byju’s can make a comeback.
Tough conditions
As conflict and war roils the world’s economy and recessionary conditions loom large, the start-up ecosystem is facing a long winter freeze. Data collected by market intelligence platform PrivateCircle Research revealed startup funding in India fell over 62% cent in 2023 to about Rs 67,000 crore as compared to Rs 1,80,000 crore in 2022. This is the lowest level since 2018 when Indian startups raised Rs 1,00,930 crore. The fall seems even higher considering the peak achieved in 2021 was over Rs 2,40,000 crore.
Anecdotal reports from Pune, a base for many start-ups, indicate that with easy access to capital drying up, early-stage startups are feeling the pain with the gestation period- the time taken to begin producing results, doubling to almost 24 months.
A global summit in November last, organized by The Indus Entrepreneurs (TiE), a non-profit working to nurture start-ups, heard optimistic voices predicting a turnaround after March this year; but it also said it was the end to easy investments, and outrageous valuations. However, with the intensity of global conflict increasing with the Gaza conflict spilling over to the rest of West Asia, the tight money flow is likely to continue for much longer.
The upside is start-up launches will be with better homework, while investors and lenders will do their due diligence as they become more choosy.