Kiran Somvanshi
For most onlookers of Byju's debacle, there is some consolation that it is not a listed company. For parents, it is a relief that Byju's isn't a full-fledged educational institution granting degrees.
In 13 years, Byju's became market leader of the Indian edtech sector; commanding peak valuations of $22 billion two years ago. The pandemic— prompting a shift to online education — provided the wind to the edtech industry's sails. However, expensive acquisitions, questionable business practices and mis-governance soon brought trouble for the company. The latest developments have been about ED issuing a lookout circular for the company's founder and CEO, Byju Raveendran, over forex violations and a group of investors voting to oust him from CEO's position.
From being part of the Hurun India rich list in 2022 to suffering over 90% dip in the company's valuations to having travel restrictions imposed on him, Raveendran has charted a disparaging journey In Hindu culture, it is believed that if one pursues Saraswati (the goddess of knowledge), then Lakshmi (the goddess of wealth) follows suit.
Incidentally Byju's attempt of dispensing Saraswati to gain Lakshmi could n't sustain for long—with allegations of mis-selling, unfair trade practices, unethical accounting practices, expensive acquisitions, mishandling of user data, forex violations, toxic work environment, financial mismanagement, loan defaults and unpaid employees.
Unveiling of Byju's not only underscores the need for governance in the unlisted startup space but also shows how this need gets accentuated when the entities are proliferating in areas that are considered as public goods or essential services, such as education, healthcare and banking.
Education, healthcare and banking services are vital public services in India. Education is seen as a critical route to achieving social and economic mobility for Indian households. Families across socioeconomic strata save money or take loans to ensure their kids get a good education.
Affordable and accessible healthcare is a critical public service in a country that does not yet have universal health coverage. Most in the country are one major health calamity away from slipping into indebtedness. Likewise, accessible banking and financial services remain essential in India. where millions are joining the formal economy every year.
Startups in consumer products, retail, entertainment or space exploration can mushroom, experiment or fail, without having any significant socioeconomic repercussions for the masses. But when new-age businesses with innovative business models engage in essential services and fail, the loss hits harder, the pain is more widely felt, and the trust deficit is graver.
India, as a developing country cannot afford to go down the same path as that of a developed market like the US, which can continue to lead the world economy despite expensive education, unaffordable healthcare and banks with chequered track records.
However this does not mean India's education, healthcare and banking sectors should remain bereft of any startup-driven innovation. It needs to be encouraged with necessary guard rails so that affordability, accessibility and frugal innovation are incentivized, instead of pursuing fancy valuations and profit maximization at all cost. Self-regulation isn't a strong guard rail, as has been made evident by Byju's debacle.
In 2022, India's edtech industry set up a self-regulatory body the India EdTech Consortium. In July that year, Gol warned edtech companies against unfair trade practices, stating that it would formulate stringent guidelines if self-regulation did not work. But there is an inherent conflict in the idea of self-regulation — it is difficult to police one's failings. Little wonder, then, that a body manned with the who's who of the edtech industry failed to check the mis-governance happening in the sector's leading player.
It is also a wake-up call for the private equity and venture capital industry that funds and backs startups to realise what business models would create long-term value in a price-sensitive, low-paying but high-volume market like India. The business models that have worked in the US and other similar markets don't necessarily work here. Stakeholder value creation doesn't only mean rising valuations and a successful public listing. It also means happy employees, satisfied customers and a well governed business.
Byju's, however, did end up providing education for all — its stakeholders—on how not to run down a promising business.
Note: Views expressed in the article are of the author and do not represent IICA’s stand/views.
(IICA duly acknowledge the ownership/authorship of the Article as well as publishing rights of The Economic Times which originally published the same)
