Pre-IPO pedia | Valuation over $20B, Indian education unicorn BYJU'S aiming at SPAC listing

BYJU'S, an education technology company from India, closed an $800 million funding round in March 2022, reaching a valuation of $22 billion.

So far, BYJU'S has become the most influential unicorn in India's K12 online education platform and has won the flavor of some prominent investors including BlackRock, Tencent and Facebook.

What is the reason for the great success of BYJU'S? IPO Buzz will take you to its story.

Byju Raveendran, the founder of BYJU'S, was born in 1980 in a small town in southern India whose parents work as teachers. From an early age, he showed his great talent in examinations and always got high marks easily.

Fond of mathematics and science, he graduated in engineering and joined a shipping company in Singapore as an engineer in 2001. Not surprisingly, he will spend the rest of his career in such a decent job.

However, one who has extraordinary talent is bound to be discovered. In 2003, 12 of his friends invited him to help them prepare for CAT, an entrance exam in India, with the pass rate at only 1%.

Out of curiosity, Byju also took the exam and passed with a high score, while four of his friends also passed it under his guidance.

Realizing that his talent could be of great use in India's education market which shows great potential, Byju resigned from his job and returned to India to work as a teacher.

Unexpectedly, 40 people participated in his first class. Within just seven weeks, the class size quickly expanded to 1,000.

With a sound momentum of growth, he expanded his business to four other cities with himself working as the main lecturer.

In 2007, Byju moved down the target age group to college students, and his fascinating teaching skills helped spread the word about his classes.

In 2011, Byju set up a start-up team with a dozen of his students and officially launched BYJU'S, an educational brand that bears his name.

Once the brand was established, the question that how to expand the awareness of BYJU'S among the public and increase its market share became the main concern of the team.

Even though the internet was not yet popular at that time, Byju was keenly aware of the business opportunities in online education and paid attention to video classes.

Since then, "video + live" has become the main product format of BYJU'S.

At that time, the coverage scale of smartphones in India was also increasing at a rapid pace. In 2015, there were 243 million mobile internet users in India and the internet share hit 26%.

It is obvious that BYJU'S was riding the wave of India's internet boom.

Under such a great opportunity, BYJU'S: The Learning App was born. In 2018, BYJU'S became India's first EdTech unicorn with 15 million users and 900,000 paying subscribers.

After the 2020 COVID-19 pandemic, the number rises to 57 million and 3.5 million, with a paid rate of 6.14%.

BYJU'S focuses on adopting a blended teaching model. On the one hand, BYJU'S has opened 500 tuition centres in 200 cities across India for offline teaching. On the other hand, it also offers online video-based teaching services.

At its inception, BYJU'S focused its teaching business on the K12 (kindergarten through twelfth grade) because India, with 260 million preschool children, is the largest K12 education market in the world.

Also, the uneven educational resources in India have led to high demand for out-of-school training among students.

Taking the studying characteristics of the K12 into consideration, the courses that BYJU'S offers demonstrate knowledge through animated videos of around 15 minutes, from which students can arrange their study at their pace mode.

In August 2015, BYJU'S launched its official appwhich provides various courses apart from those aiming at K12, such as guidance curriculum for Indian examinations CAT and IAS as well as international exams such as GRE and GMAT.

Considering the study of children is one of the top concerns of parents, BYJU'S also launched an app called Parent Connect in 2017 to enable parents to keep a better eye on their children's learning.

In 2019, the company announced its plans to launch an international version of the apps for overseas students whose mother language is English, which shows its ambition to expand into overseas markets.

Up till now, the company has raised over $4.9 billion in 25 rounds of funding from major investors including Tencent, Silver Lake Capital, B Capital Group, Tiger Global Management, Mirae Asset Global Investments and others.

It is worth noting that BYJU'S raised nearly $2.3 billion in six funding rounds in 2021 alone, which shows a significant increase from previous years.

At the same time, its valuation grew rapidly from $10.8 billion in September 2020 to $16.5 billion in June 2021.

In March 2022, BYJU'S received another $800 million in financing from BlackRock and others, with its valuation soaring to $22 billion.

BYJU'S mainly profits from the sale of hardware products that contain teaching content.

According to its 2020 financial report, tablets and SD cards with pre-loaded curriculum content contribute the majority of its revenue, at 70.4%.

The reason why hardware products dominate BYJU'S revenue is that BYJU'S has taken the recent high internet penetration in India into account.

Since users can get access to pre-installed learning content on SD cards by simply using an Android phone or tablet, its hardware products are well suited to the existing condition and the characteristics of online education.

The second-largest source of revenue for BYJU'S is the sale of textbooks, which accounts for approximately 23.5% in FY2020.

In addition, part of BYJU'S revenue comes from paid course subscriptions, with a proportion of approximately 6.1%. Students are allowed to choose whether to pay for the courses after trying them out for free for 15 days.

Advertising promotion, on the other hand, is by far one of the largest expenses of BYJU'S. 38.9% of its total expenses were spent on advertising promotion in FY2020, which increased 156.9% from FY2019.

According to the financial data disclosed by BYJU'S, although the company's revenue has been growing constantly since 2016, it has been in the red every year, with the loss in FY2020 reaching nearly 30 times that of FY2019.

The reasons behind the losses are closly related to its aggressive expansion strategy.

The expansion of its business from India to the U.S., the U.K. and Australia as well as its continuous acquisition of companies in the education industry has revealed BYJU'S great ambitions in globalization business.

Merely in 2021, BYJU'S acquired at least seven companies related to online education.

While the diversity of acquisitions has helped to expand its business and capture market share, its rapid expansion without an efficient management structure may also lead to the risk of a breakdown in its capital chain.

In January 2022, informed sources revealed that BYJU'S is in negotiation with at least three SPACs and plans to announce its plan to IPO through a merger with one of them within three to four weeks.

Based on preliminary discussions, BYJU'S is also considering raising $750 million to $1 billion in Pre-IPO financing.

In response to BYJU'S's IPO plans, some banks have already made valuations for it, predicting that if the company succeeds in IPO, it could be valued at as much as $40-50 billion.

The media believe that the decision from the Indian government will be a factor of uncertainty.

According to the local media, some companies are advocating for reducing restrictions on Indian companies like BYJU'S to list on overseas markets.

If the restrictions are changed, BYJU'S will re-evaluate its SPAC merger plans and probably list in both the U.S. and India.

Mooers, have you ever heard about BYJU'S?What do you think of its IPO rumors? Feel free to join the discussion below!