Investor Shankar Sharma Questions BYJU’S Investors Over Questionable Accounting Practices

Veteran investor Shankar Sharma has lashed out at investors for allowing questionable accounting practices at edtech major BYJU’S. In a tweet, Sharma slammed the venture capital (VC) and private equity (PE) firms associated with the edtech giant for the revenue recognition method followed by it.

“This is truly astounding! How on earth was the company even accounting for subscriptions any other way?? And VCs, PEs, endowments, etc, were sitting around, happily allowing such stuff to happen, while preaching the value of something called  ‘Governance’ to the rest?!” tweeted Sharma.

In a screenshot of a news report posted along with the tweet, Sharma brought attention to the change in revenue recognition method of BYJU’S in its financial statement for 2020-21 (FY21). Citing changes suggested by the auditors Deloitte Haskins & Sells, Sharma slammed the investors for not raising questions over accrual accounting adopted by the edtech major as against cash accounting, which is the norm. 

The auditing firm had reportedly raised concern over BYJU’s accounting for the whole payment as revenue in the same fiscal year as against deferring it over the period of the contract. 

The startup major said that it will recognise revenue from streaming services on a pro rata basis over the period of the contract, beginning FY21.

On Wednesday, BYJU’S released its financial results for FY21 after multiple delays. Think and Learn Private Limited, the parent of the edtech major, saw its losses widen 19.8X to INR 4,588.75 Cr in FY21 from INR 231.69 Cr in FY20. 

Not just this, even the total consolidated income fell 3.3% to INR 2,428.3 Cr in the financial year ended March 2021 from INR 2,511.7 Cr in the previous year. Total expenses also soared 144.5% to INR 7,027.4 Cr in FY21, largely on account of heavy marketing and acquisition costs.

Investors Under Lens

This adds to the mounting criticism of investors operating in the Indian startup ecosystem. Many homegrown and foreign investors have been under fire in the country recently for lax corporate governance structures and no oversight at many of their portfolio startups.

Inc42 earlier this year reported that Zilingo founders Ankiti Bose and Dhruv Kapoor burnt through millions of dollars of funding, without having any clear path to profitability. The cofounders were also in the dock for overspending on marketing and syphoning off cash, without any oversight from its investors including Sequoia. 

Fintech player BharatPe, social commerce platform Trell, B2B construction material platform Infra.Market and retail tech startup Bikayi were also in the news for similar reasons over the last few months, with issues ranging from corporate governance to mismanagement of  funds.

Despite the hiccups, the Indian startups ecosystem continues to grow at a steady pace, a far cry from the break neck growth witnessed last year. Homegrown startups raised $20.82 Bn in funding in the first eight months of 2022, down 17% compared to the same period last year.

The growth has been staggered owing to the raging funding winter that has gripped the world. The fear of an impending recession, the Ukraine-Russia war, and tightening monetary policies globally, have made investors wary of investing in startups.

However, VC and PE firms continue to raise funds. According to Inc42, a total of 78 funds have been launched in the first half of 2022 with a total corpus of $12.3 Bn.