The real problem with the Byju bubble

A few days ago, the news came that BlackRock, a large American investment manager, had yet again cut its implied valuation of Byju's. From a peak of 22 billion dollars in early 2022, BlackRock's valuation of Byju is now less than a billion dollars—basically, just a small change.

There were two types of reactions to this news. One is those who thought that Byju deserved this kind of valuation, and two are those who think that it does not. I'm in the second category. I think it's absurd that someone thinks that Byju's is worth a billion dollars - the correct number is somewhere in the vicinity of zero. The value could be negative for some shareholders, in the sense that having a Byju investment in your investment track record could - should - lower the general perception of your competence as an investment manager.

Certainly, in my mind, this is true of BlackRock, which is actually the world's largest investment manager by assets managed. It manages around $10 trillion worth of investments, but its Byju adventure makes one wonder how much of that is basically circular, in the sense that investments have a high value because BlackRock gave it a high value. It's now been at least two or three years since the reality of Byju's was widely known in many circles. Byju's customers had understood the reality, and its employees, too, knew the truth. Not only that, but many people in investment circles also went into full eye-rolling mode whenever any mention of Byju's came up.

Most of these people realised quite early that Byju's was not what one might call a 'normal' startup failure. Instead, the company had rather a lot of what is politely called 'corporate governance issues.' So why did the investors in this company shy away from recognising what was actually happening? There were probably three reasons for this. One has a desire to locate a greater fool. Two, an inability to admit a mistake. And three, genuine incompetence. There's nothing unusual about these reasons - these are normal human failings amongst many, many investors, from the smallest to the largest.

As such, because Byju's is not a listed company, you and I should not be concerned about it. Surely, this is BlackRock's and other investors' problem, not ours. There are many reasons why it is not. The reason that matters most is the scale and the sector in which Byju has created its mess. There can hardly be any doubt that education is something that requires a lot of innovation, a lot of fresh ideas and a lot of money that all need to come together to solve an acute problem, and I mean not just test prep but education as a whole. Clearly, Byju's conduct has been a setback in this.

Contrast the mess that Byju has created with something like Khan Academy. Khan Academy is a non-profit, and over some 16 years of its existence, it has received donations of less than $400 million, which is less than a tenth of the money that Byju has consumed. And yet, what Khan Academy has achieved is incomparably more than what Byju has done. The reality is that given that the internet, low-cost, high-speed global data networks and billions of smartphones already exist, most of what is needed to educate everyone is already available. Creating digital-deliverable education on top of that can be done with relatively small amounts of money. This is not hyperbole - even a rudimentary comparison of Byju's and Khan Academy proved this.

This proves that not only is Byju's a problematic business, but the very concept of venture-backed education startups in this mould is a scam - a way of pushing money around the world with no actual intention of delivering education. Excessive private capital flowing into flawed business models has distorted incentives and channelled enormous amounts of money toward the pursuit of valuation instead of education, and yet quality, affordable education enabled by technology need not rely on the VC-unicorn framework. In fact, the VC-unicorn complex cannot do this and never intended to do so.

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