"EDITION 130"

Published: 8/7/2020

Good morning, it's Friday and we're done with another week. Apologies for no newsletter but hope y'all are excited for today's piece about BYJUs acquisition of WhiteHat Jr & my thoughts on yet another "public digital infrastructure good"

  • https://tcrn.ch/2PyfFXq: BYJUs acquires WhiteHat Jr for $300M
  • ➡️ In a very rare exit in the Indian ecosystem, the EdTech behemoth BYJUs has acquired new upstart (in the coding for kids space) WhiteHat Jr for $300M in an all-cash transaction. This is honestly super great for the ecosystem and has generated returns for WhiteHat Jr's investors (Nexus Venture Partners & Omidyar Network being the biggest benefactors).

    ➡️ I find the acquisition for several reasons and it's incredible that the founder, Karan Bajaj, has been able to start, scale & exit this company in less than 2 years. This is also one of few large exits the ecosystem has seen in the last couple years (there aren't too many $100M+ exits that come to mind in the recent past other than Reliance acquiring Embibe which a friend reminded me of).

    ➡️ The company is also one of the few Indian companies that has a decent US customer base as well. And has been growing significantly in the pandemic. The company had a reported $40M annual revenue runrate in May (this likely means their revenue in May was ~<$4M) and currently reports an annual revenue runrate of $150M (July revenue >$12M).

    ➡️ Even if the company can't sustain the revenue growth throughout the year, that's still massive revenue being generated on a small amount of money raised (WhiteHat Jr has only raised $11.3M in a Seed & Series A round).

    ➡️Now speaking of the investors, Nexus Venture Partners & Omidyar Network led both the $1.3M seed round & $10M Series A round (with participation from Owl Ventures). Also h/t to Miten Sampat for this tweet (https://twitter.com/miten/status/1291219769002139649). Omidyar invested $3.5M in the company, and it stands at a <13x multiple, with Nexus also investing a similar amount (or more) in the company with a similar multiple. But this also points to the founder owning a large percentage of the company at the time of exit- I would assume he is probably $100M+ richer (and in cash!)

    ➡️ Now coming to the company itself, they provide 1-1 coding classes for children between the ages of 6-18. The company has also recently been in the news for promoting untrue advertisements at times (using Bill Gates' & Sundar Pichai's likeness as well). Also as an engineer in the Silicon Valley industry, I find it questionable that children who learn how to code become great software engineers- some of the best engineers I know didn't learn how to code until college or even after, but I think WhiteHat Jr has been able to sell that idea to the parents.

    ➡️ And even if this doesn't help children become software engineers, it's probably a very enjoyable hobby-esque class for them as well as keeps them entertained (and out of their parent's hair) during this global pandemic.

    ➡️ There's also been a lot of talk of WhiteHar Jr's revenue and how they've been valued. Some folks might look at the company being valued at $300M and it's annual revenue runrate of $150M and might say they got acquired on the cheap. But I think it's important to note that WhiteHat Jr offers 1-1 classes and not 1-many classes like many other EdTech companies and thus needs to be valued like a services business and not a software business, and thus it makes sense their multiple is lower than other EdTech companies. Secondly, the company offers packages with a set number of classes but doesn't have a subscription product or recurring revenue, so only time will tell how revenue continues to grow (or decline).

    ➡️ The last thought I'd like to leave y'all on is why did agree to the acquisition, and this is something we can probably only speculate on. The company was in talks to raise a new round which would value the company similar to their acquisition cost and would let them continue to build a large independent education company. So why choose to be acquired vs building on your own? ➡️ Well BYJU definitely seems like it's expanding it's product offerings for students through M&As (in acquisition talks with Doubtnut as well) and that makes sense because the company is reportedly profitable and recently raised several hundred million. So they would probably at some point either build a product to teach children how to code or a acquire a company that does so. And maybe the timing just worked out well for WhiteHat & BYJUs, as it definitely seems like a great exit for all parties involved, and Karan will continue to build WhiteHat Jr within BYJUs.

    ➡️ tl;dr → Great outcome for the industry, company is akin to a services biz vs software biz with larger margins, huge outcome for founder & investors on very little money raised, BYJUs on a path to acquire more cos in EdTech.

    2. https://bit.ly/3iif4pm: Nandan Nilekani launches Beckn

    ➡️ In other (and def not as in-depth) news, Nandan Nilekani has announced a new open specification for mobility & commerce called Beckn. It will work as an open and integrated marketplace that offers a level playing field for new entrants & incumbents who can use Beckn to reach more consumers.

    ➡️It's also worth noting that Beckn will be a non-profit entity, which will develop these open protocols. It seems to me that post the UPI success, we are just seeing a lot of new "public digital infrastructure goods" and maybe we don't need one for all these use cases?

    ➡️ For example, I don't really see why a non-profit entity has to build the rails for a mobility/delivery as a service platform. We've seen these companies in the US, China and even India operate as for-profit venture-backed private companies.

    ➡️ In India Delhivery has had a delivery as a service API for a while, so how would they be incentivized to integrate with Beckn for others to consume those APIs vs companies integrating with Beckn directly. These open protocol have (along with taking the burden of the public infrastructure) not really helped company's business models and it will be interesting to see how Beckn will help incumbent players to make the margins they would make without the protocol.

    ➡️ The Beckn protocol seems to be at a very nascent stage and it does have a couple of big partners (Dunzo, ShopX) but they will probably need to get massive buy-in for the protocol to be useful and be successful.

    Feedback & ❤️ always appreciated BONUS (Tweet of the day): https://twitter.com/akm1410/status/1291314312653361153

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