Byju’s plans largest funding round of $1 billion

Is ed-tech making a comeback?

These may be early days, but it looks like Byju’s is confident of pulling off a $1 billion funding and that could be good news for Edtechs. If there was any sector that greatly benefitted during the lockdown, it was the educational technology (ed-tech) sector. In the last few years, we saw a plethora of ed-tech startups like Byju’s, Vedantu, Upgrad and PhysicsWallah becoming unicorns. 

This was mainly due to skyrocketing demand for online teaching during the pandemic, when everything was shut. The sector, which was valued at $750 million in 2020, is set to reach a valuation of $4 billion by 2025 at a CAGR of 39.77%. Such rapid growth can be attributed to increased penetration of technology, better bandwidth, and willingness to learn digitally. At least, that is the way the ed-tech services have been sold to the public in India. 

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Then, what went wrong with ed-tech sector?

But not everything that glitters is gold. Even when the ed-tech companies were doing well, a lot of employees used to complain about the draconian working conditions. If one visits employee review sight Ambition-Box, several Byju’s employees had written the necessity to report to work by 9:30 am sharp, and ending the day only when the manager wishes. 

Furthermore, salespersons are made to hard sell these courses to parents to influence their children, even when the content was weak. From the parental front, there have been a plethora of complaints about Byju’s employees constantly pestering them with regular phone calls and mis-selling of courses. The problems first surfaced when the mass layoffs started. This was triggered by Byju’s struggling to elicit its debt-financing arrangements.

How Byju’s Re-Negotiated a New Funding Framework

It is said that necessity is the mother of invention, but certainly innovation. Byju’s is set to raise a lumpsum amount of $1 billion funding through a mix of equity and structured instruments. Interestingly, despite sharp write-downs by the likes of Invesco and other PE investors, Byju’s is expected to raise funds at the current $22 billion valuation. This will make it one of the largest funding rounds in recent history. The startup ecosystem is experiencing one of the worst funding winters, with few key prolific startup investors cutting bets by over 80%, and a growing aversion among VC and PE funds towards putting money into this space due to a fall in demand post the pandemic. 

Thus, Byju’s will have to account for the $1 billion out of its own pockets, with $700 million being raised through equities of one of the three Middle East-based sovereign funds. The balance $300 million will be generated through structured instruments, with Byju’s already in advanced talks with American asset management companies like Oaktree Capital Management, Davidson Kempner Capital Management and Apollo Management. 

This fundraise is like an elixir for Byju’s survival since it needs to prepay a part of the $1.2 billion term loan B it had raised from a clutch of investors in 2021. The lenders have already been urging the company to seek a prepayment of $200 million over loan restructuring. With the future of the ed-tech system seeming enigmatic and bleak, Byju’s has a Plan B too. It is looking for further means of asset monetization with plans to list Aakash Educational Services on the bourses at an indicative valuation of $3-4 billion. Byju’s is concomitantly also exploring the prospect of a merger with their biggest rival Unacademy.

Content source: Money Control