Uncomfortable accounting at a unicorn edtech Byju’s ought should serve as a warning for this ecosystem. At any cost, growth cannot be pursued. Otherwise, strict regulation can start to stifle creativity.

There is a proverb that goes, “All it takes is a crisis to distinguish the strong from the weak.” Tech firms that have been fed by years of easy money and tidal waves of foreign investments in the form of private equity and venture capital (PE/VC) inflows are feeling the effects of the economic crisis in the form of rising interest rates and decreasing systemic liquidity. Numerous unicorns in India have succumbed to the pressure, but edtech giant Byju’s problems are currently in the news.

After an 18-month wait, the corporation last week finally disclosed its 2020–21 financial figures. Its auditor had requested improvements, and two unsettling truths had come to light. One was that the company had been happily booking future but unearned unaccrued revenue, inflating its top line and valuation in the process. Byju’s has now reported losses of 4,589 crores for 2020–21, reflecting a write-down from prior years, on the strength of consolidated revenues of only 2,428 crores. Other accounting liberties were taken. It was also negligent in how it handled the interest component that subscribers who had taken out loans to pay their fees paid to it for passing on to connected lenders.

The apparent absence of fundamental governance standards in unicorns, which appear to have found favor with many renowned PE/VCs, is the second difficult aspect of Byju’s recast of accounting. As long as the executive cadre manages to keep the top line growing at all costs, which would then reflect in higher business valuations, institutional investors appear to have been willing to condone indiscretions of accounting, breaches of human resource policies, or deliberate lapses in the conduct of board business (extending occasionally to even imprudence in financial flows).

The only goal of their investment would then appear to be a successful departure, even if doing so results in the company being completely destroyed. On Byju’s website, a long list of prominent investors is listed, including Sequoia Capital, BlackRock, General Atlantic, Tiger Global, Tencent, Naspers Ventures, and the International Finance Corporation. However, none of these investors noticed Byju’s peculiar bookkeeping practices or used their influence as important financiers to force a course correction.