🦄 A Tale of Two Troubled Unicorns: Byju's and Slice
Unicorns may no longer be a rare species but they have definitely become troubled species. Here's what's troubling two once famed unicorns Byju's and Slice
Do you know why we call startups with a $1 billion valuation unicorns?Â
Because such startups are rare, as rare as the mythical unicorn.Â
But sometimes these unicorns are not all the shine and glitter. Sometimes they're just horses with sticks and a lot of paint.Â
The recent market conditions have highlighted this by showing us the reality of many unicorns.Â
While they may have multi-billion dollar valuations, many unicorns are struggling to raise funding, make profits and even comply with laws.Â
Today we bring you the stories of two unicorns that are trying their best to maintain the unicorn image and stay afloat: Byju's and Slice.Â
🤓 The Story of Byju's
It seems like Byju's has been taking notes from none other than the prime newsmaker Adani.Â
Because for the past 5-6 months it has just not been out of headlines. Good or bad, it has been constantly making news.Â
First, it was in the news because its auditor Deloitte was not signing off on its financials. This signalled to people that something sketchy was going on at the company and boy were they right.Â
When the financials finally did come out after a year and after the auditor had put in over 3,000 hours of extra work, they were certainly not good news.Â
Byju's saw a loss of Rs. 4,588.75 crores, more than 20x the loss incurred the year before.Â
And it recorded a revenue of only Rs. 2,280 crores, a 48% drop from its projected revenue.Â
So, what went so wrong for Byju's in a year?Â
Nothing. This has been Byju's reality all along. The company's auditor revealed it to the world.Â
You see, the company was following some sketchy accounting practices. Huh?Â
Suppose you buy a 2-year Byju's course in 2021. You have to pay the entire amount upfront, right?Â
So, Byju's recorded this entire amount as revenue earned in 2021.
But technically, it is providing services for two years, so the revenue should be divided and booked for both years and not just 2021.Â
That's a major change that Deloitte made that led to a decline in Byju's revenue.Â
What's more, a lot of people took out loans to pay off Byju's courses. And to ensure that people get loans to buy its courses, Byju's acts as a guarantor. Meaning, if people fail to pay off their loan instalments, Byju's will pay them off.Â
And each time that Byju's had to do that, it put these expenses under finance costs. So, the entire money from the sale of the course was reflected in the revenue, even if the company had not received that money.Â
Deloitte has now changed this as well. Any installments that Byju's now pays have to be deducted from the revenue.Â
So, obviously revenue is down and losses are up.Â
But these are not the only problems with Byju's finances.Â
An MP, Mr. Karthi Chidambaram, has flagged that a large portion of expenses relating to employees have been capitalised – that is, shown as assets, instead of expenses. As per him, employee costs do not provide any benefits in future periods, and hence are current expenses – not assets.
He is also concerned about Byju's laying off 2,500 people, claiming that this shows the company is not in sound financial health.Â
He has asked the ICAI to now audit its reports.Â
All of this negative publicity, plus the mounting losses from one of its biggest acquisitions White Hat Jr. (30% of Byju's losses are thanks to White Hat Jr.) and its recent struggles to close a funding round all have investors concerned.Â
So, Byju's has decided that it's time for a change. To finally move towards profitability, it has to change tactics.Â
It is consolidating all of its various acquisitions like Toppr, Meritnation, TutorVista, HashLearn and Scholr under one roof to save money and increase efficiency.
Plus, it is moving from direct sales to inside sales.Â
What that means is it is now going to rely more on cold calls and emails to get customers instead of direct meetings. This will obviously save a lot of money. But this also means a lot of employees need to be laid off.Â
And that's what Byju's is now doing. It is winding down operations in small towns and cities and allegedly forcing people to resign.Â
It has also shut down operations in its Kerala office, a move that has even incited the wrath of politicians.Â
And what's worse is that it has now introduced fixed salary brackets that specify revenue targets. And according to reports by Inc42 if employees fail to meet 70% of the target they will reportedly have to leave the company.Â
While all of this could help the company reduce losses and maybe even become profitable, it is really dragging the Byju's name through the mud. In fact, the bad publicity may cause funds to dry down more and the company may even struggle to find good employees in the future.Â
However, this seems to be the only way to move towards profitability. Earlier the company wanted to conquer the world, have as many students as possible.
And to do this it did everything possible: IPL ads, courses by celebrities, multiple acquisitions.Â
But now it seems that Byju's (and other edtechs) may have to go the Airtel way to ensure profitability.Â
When Jio entered the telecom market with its cheap prices, Airtel decided to secure higher revenue by serving and securing customers that provided the highest revenues. It upsold more services to them to maintain a higher revenue, allowing it to compete with Jio.Â
So, these edtechs may also have to take a similar route. Cater to the highest paying subscribers instead of opting for scale to become profitable. But will Byju's be able to achieve this? Or will investors keep pushing enough money in it just to keep it afloat?Â
But enough about Byju's. Let's come to our second troubled unicorn of the day: Slice.Â
💳 The Story of Slice
Slice's business model was simple. It offered users a card on which it gave them a credit line.Â
Sounds like an ordinary credit card? But it wasn't. It was basically a form of buy-now-pay-later service involving prepaid payment instruments (Confused? You can read more about it here).Â
Long story short, what Slice was doing was technically illegal and the RBI called it out and shut down its operations. So, the company had to pivot out of nowhere. Its initial idea was to just provide people with plain and simple instant loans according to their purchasing power. But the idea didn't seem appealing enough.Â
So, it is trying to go back to its earlier BNPL model but in a more roundabout way.Â
Instead of transferring credit straight to a customer's card, it is transferring money straight to their bank accounts. From there customers can transfer money to their cards and use it.Â
But customers may not want to opt for this complex process, especially as Slice has restricted its USP to just a few cards. You see, earlier it allowed all consumers to pay bills in three interest-free installments. But owing to huge losses, the company has now almost abandoned this practice.Â
Plus, it has been accused by some of charging super high interest rates.Â
So, it is unclear if this pivot will save the company or not.Â
P. S. Our associate Shanmukham K. contributed to this article.
âš¡In a line: Unicorn status is not enough to ensure profitability or even smooth operations for startups.
💡Quick question: But what are your thoughts on these two unicorns? Will they survive or not?Â
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