INTELLI™ Weekly Insights
Friday, November 18, 2022 | Volume 1 Series 27 | A feature on Tellus, TikTok, and of course, venture deals & signals. INTELLI™ Sneak Peak: A special report on BYJUs, the Indian ed-tech giant.
🍹 Another week flies by and with this, of course, another round of news and updates brought to you by the INTELLI™ Newsletter. Today, we have a feature on Tellus, TikTok, and of course, venture deals. We have a special report on BYJUs, the Indian ed-tech giant, for you all as well.
So whether it’s that mid-day espresso or that evening glass of wine, settle down as you power through Friday with INTELLI™.
📖 BYJUs Learning
If you, someone you know, or a firm you believe would be interested in transacting in PreIPO’s large allocation of BYJUs, contact us here.
Overview
BYJU's makes learning engaging & effective by leveraging deep pedagogy & cutting-edge technology. With offerings ranging from adaptive self-learning courses on apps & web to personalized 1-on-1 classes with expert teachers for ages 4-18+. Through relentless effort and innovation, BYJU’S mission is to redefine how the world learns, break the barriers to quality education, and help build a learning ecosystem that will create leaders of tomorrow.
Having started from one classroom in the Indian city of Bangalore, today, BYJU'S is present in 100+ countries across the world. The trusted learning partner of 150+ million students, BYJU’S brings the future of education to the present through technology-enabled, personalized, and engaging learning journeys. The companies under the BYJU'S Group cater to a wide range of learners, from children at the start of their education to adults who are looking to upgrade their professional skills. Over the years, BYJU’S has built a powerful and talented team of visionary founders and entrepreneurs to further the company’s mission to create lifelong learners through tech-driven education.
INTELLI™ 🔎 STRATEGIC ANALYSIS
Why this Company matters right now
BYJU’S is an Indian multinational educational technology unicorn, headquartered in Bangalore. It was founded in 2011 by Byju Raveendran and Divya Gokulnath. The company develops personalized training for kids in Kindergarten to Grade 12.
As of March 2022, BYJU'S is valued at $22 billion, and the company claims to have over 115 million registered students. BYJU’S has raised a total of $5.5 billion in funding in over 23 rounds, including a recent pre-IPO round in March 2022 of $800 million led by its founder, Byju Raveendran. BYJU’S has gained the trust of more than 21 investors, including the Chan Zuckerberg Initiative, BlackRock, Qatar Investment Authority, and Tencent.
Problems with this company
The ed-tech sector is being hit particularly hard as India and other countries emerge from the pandemic and students return to physical schools. BYJU'S has cut staff and budgets this year in many areas, although the company said it continued to be a net hirer.
On Trustradius.com, BYJU’S has a rating of 2.3 stars out of 5 based on 178 reviews. A lot of customers complain of this company being a complete fraud. The customer service is pathetic, the teacher’s quality is poor, and customer refunds take months. Many investors have even questioned the speed at which BYJU’S has been acquiring other companies, especially after COVID when almost all funding is drying up globally.
Potential solutions this company could take
All customer complaints can be resolved easily with a dedicated customer support team. Any review posted or experience shared online must be dealt with high importance. From the looks of it, the marketing or branding team is not very active in looking after these complaints. Refunds should be processed immediately so customers are not running after their own money.
Bain & Company’s perspective on BYJU’s sales growth is highly positive, with revenue growth projected at 25% to 30% during the next 5 years, 2027 projection. The household income pyramid shape of India is changing year over year so more families are coming into BYJU’s serviceable addressable market (SAM). Besides, deeper sales force development and product innovation will allow BYJU to make the most of the substantial white space in several market segments. In addition to that, the market for live tutoring is large and will grow even faster to three-four million students, and there is a lot of demand for live tutoring. According to several focus groups conducted by Bain, 80% to 85% are likely to adopt live tutoring. Finally, BYJU is clearly the leading player in this digital market with a 90% market share that has been consistent over the last few years and they've consolidated their market positions.
Key things "coming up" / that might come up in this company's near future
In February 2022, the company said it was looking to invest $200 million to grow tuition centers across 200 cities. There are multiple reasons why the company might move towards an IPO. The new funds would not only raise its valuation significantly but also aid in meeting growth and expansion purposes, cater to working capital requirements, meet expenses of share issuance, and account for general corporate purposes.
The company is looking to expand not only in the K-12 students but also in test preparation for older students and upskilling for adults in cooperation with universities. These product features will likely increase BYJU’s revenues and profitability leveraging on their brand equity to diversify their client base in a synergic way as they have an existing product and design capabilities to properly attend to these segments’ needs. These new segments have important differences when compared to the K-12 student and their families, in particular the upskilling adult segment. The company is heavily investing in market analysis for this segments with assistance from Bain & Co.
Predictions that you have on this company's next moves, etc.
As late as December 2021, BYJU’S was reported to be in talks to go public in the US by combining with a blank cheque company, or SPAC, led by Michael Klein’s Churchill Capital, in a deal that would have valued the business at more than $48 billion. The company said that it was planning to launch its initial public offering in the next 18 to 24 months. Under the preliminary terms discussed with Churchill Capital, BYJU'S would raise a total of about $4 billion and seek a valuation of about $48 billion.
The company will be looking forward to an international expansion, and they could probably leverage on the capabilities acquired from serving the upskilling adult segment. BYJU is a clear market-dominant player in India with 90% market share, therefore their growth is limited by the Indian EdTech market growth and the availability of making new customer to adopt digital learning solutions. It is clear that the Indian market is considerably large and dynamic to provide for significant growth during the last years and this will probably be the case for the foreseeable time. However, a long-run perspective advocates for international expansion as new markets can untap exponential revenue growth opportunities, especially in the knowledge-based economy paradigm in which workers all around the world seek for educational opportunities to improve their living standards.
Opportunities the company has
India’s edtech market opportunity is poised to grow to $10.4 billion in 2025, and to get a holistic foothold in the country’s edtech space, BYJU’S has also ventured into a hybrid teaching model with Aakash’s acquisition. It has launched edtech ventures in the US and now plans on taking on the MENA region. The online tutoring company had benefited from stay-at-home Covid restrictions but as the world is now opening up, online edtech companies like BYJU’S should be looking for physical teaching. The blend between physical and virtual learning could be drastically improved by increasing physical teachers' capabilities or allowing them to use digital inputs in their classrooms. Hybrid product opportunities could also leverage augmented reality solutions that could drastically improve the learning experience.
The company could develop important financial solutions for its clients, especially in the adult segment. Upskilling adult courses have a great potential for income share agreements that could create great value for the company. In addition to that, BYJU could use its important client base and securitize its debt pool, allowing for cheaper finance for their customer, increasing its customer base, and allowing the company to entail strategic partnerships with large-scale financial allies. This could benefit the company in their networking to obtain equity and leverage to increase funding for their growing operational requirements.
Things that pose a risk to this company
BYJU’S is coming under intense scrutiny from the government, investors, and creditors over repeated failures to publish its accounts, as funding and revenues dry up for the once-booming educational technology sector. Moreover, the company is yet to receive funds from Sumeru Ventures and Oxshott Capital, that have committed to investing about $250 million in the edtech firm’s latest funding round. In terms of funding squeeze, there has been a 37% dip in venture funding for startups in India in the quarter through June this year compared with the March quarter. Rivals like Unacademy and Vedantu are also expanding offline.
BYJU’s clients are having increasing financial difficulties in paying for the cost of this service as there is limited customer finance. In addition to that, there is a growing “mis-selling” risk in which parents are not able to cope with the financial cost and end up feeling trapped by the company. This dynamic could significantly grow due to the ongoing economic context characterized by high inflation and increasing interest rates. High inflation will negatively affect parents’ disposable income, their disposable income will also be negatively affected by the negative impact of global recession, reducing output and consumption. The disposable income reduction will negatively impact on parents’ willingness to acquire “non-essential” services such as optional education tools. In addition to that, the increasing interest rates will lay a heavier burden on financial costs and parents looking for any means to finance the service acquired will be negatively impacted by this trend.
What the "haters" would say about this company
BYJU’s high price and limited financial possibilities will end up making the company not meet its growth targets and destroy shareholder value as tech companies rely on double-digit growth. This could eventually lead to funding rounds at unfeasible prices that could potentially lead to the company not meeting expectations. This dynamic could backfire and make the company to be worse off than their situation before the round as the previous stockholders would be diluted and facing financial difficulties.
BYJU is benefiting from being the industry’s first mover, however, the company could be negatively affected by new entrants that could be highly disrupting. In addition to that, new technologies such as the Metaverse and virtual reality could completely alter the market and BYJU is not preparing for this new reality. Industry titans such as Meta (Facebook) and Apple are heavily investing in the required hardware and software capabilities to disrupt how people relate to the Internet, needless to say the Web 3 blockchain technologies could also add new possibilities that could be used against BYJU if the company is not prepared for them.
Key takeaways / Hot takes
BYJU’S has held the mantle of India’s highest-valued startup since its valuation touched $17 billion in September 2021. In FY22, BYJU’S valuation was propelled by its 9 acquisitions and estimated revenue of $1.25 billion in FY22. While edtech is yet to announce its FY21 financial statements, it reported a revenue of $300 million in FY20 when it claimed to be profitable for the second year. BYJU’S has also seen a 25% increase in valuation year-on-year.
BYJU is the market leader in its segment with a 90% market share, it is the best-in-class advocacy and has an impressively high client retention rate of 85%, and it is the preferred choice for non-users looking to adopt digital K-12 solutions (Bain & Co. focus groups). These customer views constitute a key long-term fundamental for BYJU’s long-term development and is a growing moat that will limit the impact of competition.
🏛 Tellus to Offer Better Saving Rates for Consumers
Tellus, the six-year-old fintech startup claims it can offer people yields of 3.85% to 4.5% on their savings balances by using the money to fund certain U.S. single-family-home loans.
With mortgage interest rates having more than doubled since a year ago, one might think that this is not the best time to be a digital mortgage lender.
But co-founder Rocky Lee believes his company’s unique business model sets it apart from other such lenders in the space.
For one, the company has a very niche offering. It targets existing home owners who wish to upgrade to larger homes without selling the homes they live in, which makes it difficult for them to get approved for loans by traditional mortgage lenders.
Tellus’ interest rates are typically 200 bps higher than the standard conforming mortgage. For example, in today’s market if a loan’s rate is 7%, Tellus will charge 9% — a premium because it claims it’s offering to lend money to American single-family-home borrowers “in prime cities” who would otherwise not be able to get such loans. Because it is using its retail customers’ savings deposits to fund these loans at a 3.85% to 4.5% yield, Tellus makes its money on the spread of what it’s paying out in interest versus what it’s charging its borrowers.
Its retail customers are able to earn interest on a daily basis, while getting help with things such as budgeting funds and setting financial goals. Tellus says it promotes financial literacy by quizzing users on financial terms, for example, and then rewarding them with higher interest rates. At the same time, the company touts that it is enabling these consumers to invest in real estate in a way they would not have otherwise been able to while having the ability to withdraw their money at any time.
Read more here.
📺 TikTok’s Thriving Ad Strategy
TikTok was once best known for viral dance videos and pop songs. Now the Chinese-owned app is a digital advertising juggernaut.
Even though digital ad sales have slumped dramatically during the global economic slowdown, TikTok stands to make nearly $10 billion in ad revenue this year, more than double 2021’s total, estimates suggest.
Though not immune from market forces, TikTok appears to be stealing business from its rivals. Its ad revenue is expected to eclipse that of Twitter and Snap, though its business remains small compared with Google and Meta. The app has also pushed brands to work with content creators to make ads seem natural. “Don’t make ads, make TikToks,” it told brands.
💰 INTELLI™ Featured Venture Deals
Eliyan, a company that manufactures semiconductor and chiplet interconnects for homogenous and heterogenous multi-die architectures, raises $40MM Series A from Tracker Capital Management.
Teamraderie, a company that provides online experiences intended to increase connection, commitment, and trust in teams, raises $7MM Series A from Founders Fund.
Glow Insurance Services, a company that develops an insurance platform designed to offer workers’ compensation coverage, raises $22.5MM Series A from Cota Capital.
Laika, a developer of an enterprise-ready compliance platform, raises $50MM Series C from Fin Venture Capital.
Wesper, a firm that develops and manufactures topical patches to bring the full cycle of sleep therapy to home users, raises $7.5MM Series A from Ceros Capital Markets.
Zenas BioPharma, a company engaged in the development and commercialization of immune-based therapies, raises $118MM Series B from Enavate Sciences.
Infinitum Electric, a company that develops patented air-core motors, raises $30MM Equity Funding from Riverstone Holdings.
Actnano, a company that provides water-proof nano coating for vehicles and electronics, raises $8MM Equity Funding from Liquidity Group.
Boardable, a company that provides an online board management and meetings platform, raises $2.6MM Series A-1 from Base10 Partners.
Positive Group, a software publisher firm that develops solutions for digital business communication raises $110MM Equity Funding from EMZ.
Stay tuned next week for more updates brought to you by PreIPO INTELLI™