HSBC and BlackRock Declare Byju's Investment Worthless

HSBC and BlackRock Declare Byju's Investment Worthless

HSBC recently downgraded Byju’s, which was once valued at $22 billion, to zero. This valuation downgrade is one of the steepest seen in the history of startups. Adding to this, BlackRock, another large investor, has also marked down its investment in Byju’s, which shows how worried it is about the firm’s prospects.

The following are some of the issues that Byju’s has encountered in the last two years. The company, which rose to fame by providing unique online learning solutions in the course of the COVID-19 outbreak, has since faltered

It is important to note that as soon as students went back to the physical classes, Byju’s experienced a sharp decline in its business.

This shift was further compounded by poor financial decisions like aggressive acquisition and expensive marketing initiatives like sponsoring the Indian cricket team and having Lionel Messi as a brand endorser.

Some social media users were complaining that Byju’s is growing too fast and too recklessly, while others are worried about the staff who lost their jobs or had their wages cut.

A Reddit user said:

“It’s a classic case of overreach—trying to grow too fast without a solid foundation,”

While another user on X mentioned:

“This should be a wake-up call for all startups to prioritize sustainable growth over flashy valuations.”

They vary from negative remarks on the company’s management blunders to sympathetic remarks on the effect on edtech and Byju Raveendran's (CEO Byju's) failure to handle the company well.

The situation worsened last year when the company missed its financial reporting deadlines, and its revenues were below 50% of the projected figures. This failure coupled with the sudden resignation of the company’s auditor and several board members scuttled a $1 billion fundraising campaign.

Byju’s largest investor, Prosus, publicly rebuked Byju for “regularly disregarded advice” and is now contesting a $200 million investment that Byju raised at a post-money valuation of about $250 million. 

These governance issues have taken a toll on Byju’s valuation in a big way.

HSBC’s estimate that Prosus's 10% holding in Byju’s is worthless which underlines the problem with the startup. This valuation has not been disclosed before but it paints a grim picture for Byju’s as it continues to face legal issues and financial woes.

Not just Byju's but many other Indian startups are just fading away with valuation reductions such as:

  • Pharmeasy: - HSBC has revised Pharmeasy's valuation to $2.8 billion, down from $5.6 billion in 2021.
  • Meesho: - Meesho's valuation is now $2.5 billion, a decrease from its previous $4.9 billion.
  • DeHaat: - Indian agritech startup DeHaat is valued at $400 million, reduced from $800 million.
  • ElasticRun: - ElasticRun's valuation has dropped to $800 million from its former unicorn status.

However, Byju’s is trying to bring its business back to normalcy after these blunders.

BlackRock Declare Byju's Investment Worthless
BlackRock disclosure document screenshot

The company has embarked on massive restructuring measures such as leadership reshuffles, downsizing of employees with massive layoffs, and efforts to divest some of its subsidiaries including Epic and Great Learning.

It also aims to float its subsidiary Aakash Educational Services to get much required funds.

It is for this reason that Byju’s is a cautionary tale that shows the dangers of exponential growth and the need for proper management of funds in the startup world.