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Eleventh-grade student Akshath Mugad uses the Byju's learning app at his home in Mumbai. The app has 2 million paid subscribers. (Photo by Kosaku Mimura)
Startups in Asia

Indian education unicorn Byju's aims to ace global test

Tutoring app makes 'accidental entrepreneur' an investor darling

MUMBAI -- India, widely considered the birthplace of the number zero, has a proud mathematics tradition. So it came as a shock to Byju Raveendran when he learned that many middle school students were unable to do basic arithmetic.

This was before 2011, and the struggle continues. In 2018, one study by a nongovernmental organization found that 56% of eighth-graders could not solve a three-digit by one-digit division equation.

Raveendran, who calls himself an "accidental entrepreneur," is determined to crack the problem with his $4 billion startup Byju's, the most valuable education venture anywhere.

The 38-year-old wants to do more than that, though -- he is out to change the way the rest of the world learns, too.

Byju's exemplifies a new wave of Indian startups that are tackling social issues, like inadequate medical care or poor logistics, rather than trying to compete in fields such as ride-hailing or e-commerce. And the company has made believers out of Facebook founder Mark Zuckerberg's philanthropic foundation, Chinese tech giant Tencent Holdings and the World Bank Group's International Finance Corp.

All have invested, helping to make Byju's the fifth-largest unicorn in India, out of 14 startups with valuations of at least $1 billion as of January, according to U.S. research firm CB Insights.

Byju's educational approach centers on a freemium app, combining free access with subscriptions. It features slick and colorful videos with animations designed to keep children captivated. "I help [students] visualize concepts instead of just discuss theories," Raveendran told the Nikkei Asian Review.

The app has been downloaded 30 million times and attracted 2 million paying subscribers. Three or four months into a subscription, Byju's conducts an online assessment and, depending on the student's progress, assigns a personal mentor.

The company appears to be getting results both educationally and, to an extent, financially.

Akshath Mugad, an 11th-grade student preparing for exams in Mumbai, and his sister Akriti Mugad, a seventh-grader, have been using the app for the past three months.

Akshath has never taken private tutoring. He said most such programs move at their own pace, out of sync with the school curriculum. But since the Byju's app is personalized and covers everything from physics and chemistry to biology and math, he is able to keep up with his class.

Meenakshi Mugad, their mother, said it is hard to tell how much the app helps until they take a test. "But I can see them taking interest in the lessons without me having to push them to study. That's a positive."

An International Finance Corp. study on Byju's last year found that 92% of 20,000 parents reported improvement in grades.

When it comes to earnings, Byju's is not yet profitable, but it has doubled its revenue over the past three years. For the fiscal year through March, it expects to log 15 billion rupees ($209 million) in revenue, triple the previous year's figure.

For the fiscal year ended March 2018, Byju's nearly halved its net loss, to 372 million rupees from 618 million rupees.

The company employs around 3,200, including a large video, animation and information technology team that produces clips that simplify subjects for students in grades four through 12. It also offers materials to help with entrance exams for engineering, medical, civil service and business schools.

The videos range from 30 seconds to 25 minutes depending on the subject, and users spend an average of 64 minutes a day on the app.

Behind the scenes, the venture uses artificial intelligence to recommend the learning materials that are best suited to a particular user. "We're focused on deepening understanding, not having children memorize things to pass tests," said Raveendran, who serves as CEO of operating company Think & Learn, though the business goes by its brand name.

An overreliance on rote memorization is often considered one shortcoming of Indian education. The country of 1.3 billion also faces a shortage of over 500,000 elementary school teachers, while 14% of government-run secondary schools do not have the prescribed minimum of six instructors, according to a report by the Centre for Budget and Governance Accountability and Child Rights and You.

A high school class in the state of Uttar Pradesh: The country of 1.3 billion faces a shortage of teachers and schools. (Photo by Kosaku Mimura)

The India Brand Equity Foundation estimates the country needs 200,000 more schools, 35,000 more colleges, another 700 universities and 40 million more seats in vocational training centers.

Overcrowded classrooms, a lack of teachers in suburbs and rural areas and generally low government spending on education have all given rise to a major side industry: tutoring.

Most of these services give students more face time with teachers but do little to inspire.

Byju Raveendran speaks to the Nikkei Asian Review at his company's headquarters in Bangalore. (Photo by Rosemary Marandi)

"Traditionally, parents tend to believe that the right education can be imparted only in a face-to-face manner, preferably in a classroom," Raveendran said. "Also, in India and several parts of the world, learning is driven by the fear of exams rather than the love of learning. The mindset has been our biggest challenge."

It was in this environment that Raveendran carved a niche.

Raveendran, who hails from the southern coastal village of Azhikode in the state of Kerala, was a standout student himself. While traveling the world as an engineer for a British shipping company, he came home for a holiday and took the entrance exam for the country's top business schools, the Indian Institutes of Management. He scored in the 100th percentile.

Yet he did not enroll. He had found his true vocation helping friends prepare for the same test. He went from holding impromptu sessions for his buddies to speaking to 1,200 people in packed auditoriums.

The success of these sessions prompted Raveendran and some of his students to try creating videos. In 2011, when he started the company, he had some of the best and brightest producing content. His first eight employees were all former students who had attended top business schools and gained experience at well-known companies like Boston Consulting Group.

Early backers included Mohandas Pai, a former CFO of information technology consultancy Infosys, who had attended one of Raveendran's auditorium lectures. The first round of venture capital funding came in 2013.

Along the way, Raveendran leveraged his own star power as a renowned tutor, and later brought in Bollywood superstar Shahrukh Khan as a pitchman. The spread of affordable smartphones in India also helped Byju's take off.

Investors appreciate the founder's determination to monetize the app in an age where many expect online content for free.

GV Ravishankar, Sequoia Capital's managing director for India, wrote in a note about Byju's that most education technology companies cite large numbers of visits or downloads of free content. The plan always seems to be to monetize someday in the future.

"With so many resources available online, there is limited perceived value if something is offered free," Ravishankar wrote. "Parents are not looking for free ways to make their child successful. They are looking for The Best Way! Have the courage to charge for the value you provide."

Byju's packages start from $160 a year, a significant sum in a country where annual per capita income averages around $1,670.

Its closest competitor, Toppr, has attracted 5 million users with stories and games and charges $70 to $352. The Khan Academy, a U.S. nonprofit organization, posts video breakdowns of complex math and science on YouTube for free.

N Chandramouli, chief executive of TRA Research, thinks Byju's has taken coaching to a different level. "It has created a sense of curiosity among the students. ... Their style of communicating has been very subtle, it is targeted at the child, not the parent. They are changing the way kids learn and preparing them to face life."

Raveendran said the challenge is not just to persuade parents to pay for content, but to raise awareness of online tutorials in the first place. He also expects a wave of technology-driven change in Indian education.

"There is no place for complacency for us," Raveendran said. "We need to grow and grow fast."

To help spur that growth, Byju's in 2017 started recruiting teachers from across the English-speaking world to come and record videos in its Bangalore studios. The company looks for educators with large followings on YouTube and pays them to participate, hoping their fans will follow them to the Byju's app. The company would not say how much it pays the teachers.

Byju's is growing through acquisitions, as well. It has made four so far, aimed at either securing content or extending its global reach.

The latest came in January. Fresh off a $540 million round of funding from South African media company Naspers and the Canada Pension Plan Investment Board, the unicorn announced a $120 million deal for Osmo, a U.S. developer of online learning tools that mix in offline activities.

Byju's wanted to make an acquisition "that will eventually help us launch in a new market," Raveendran had told Nikkei before the deal.

By the July-September quarter, Byju's plans to make its app available in the U.S. and some Commonwealth countries such as the U.K., Australia and New Zealand on a trial basis. The startup will introduce materials for kids ages 5 to 8 in these countries, with a heavier emphasis on game-based learning than pure visuals.

"We are in the process of building a product for international markets," the founder said, adding some of the most popular YouTube teachers are helping with this.

Raveendran is confident parents outside India will buy what Byju's is selling.

Harish HV, a former partner at Grant Thornton India, agrees. "In the Western world," he said, "those who get the benefit of education would definitely be willing to pay and will pay. It would depend on the product they introduce there, how they market it. I don't see a problem."

Whatever happens abroad, Raveendran sees the huge Indian market as a strong backbone. He is aiming for an initial public offering in two or three years and reckons the company will be successful enough at home to go ahead. "By that time we will generate enough money from the Indian business itself," he said.

But Raveendran harbors bigger ambitions.

"We have the required talent and capabilities [to] create a product for students across the globe," he said. "Currently, there are no products like Byju's Learning App which can reach out to such a large number of students and create great engagement at the same time.

"We strongly believe that such a product can come out of India."

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