How an ed-tech startup ran out of money & shut down

Lido made $1.5M last year. This year, all of a sudden, it was completely shut down. But, why exactly did a well-funded ed-tech startup disappear?

16th March 2022
5 min read

One fine day, the CEO of a Series C startup calls everyone for a virtual meet, and announces that they are shutting down operations on the same day. Nobody needs to show up for work, and their salaries would be paid out in 3 months.

Of course, this was a heartbreaking moment for Lido's ~1300 employees. No one saw it coming, not even the seasoned investors who put in $10 million into the company just 4 months back.

So how does a well-funded ed-tech startup, that made $1.5 million in revenue and aiming to reach $100 million next year, suddenly disappear in a day?

This is the story of Lido — a company that ran out of money after spending more than ~$15 million and had to shut down in less than 3 years.

Firstly, what exactly was Lido doing?

Basically, Lido Learning offered tuition in Mathematics, Science, English and coding for students from KG to Grade 12.

But doesn't Byju's or Vedantu do the same thing?

Well, yes. But Lido does this in a slightly different way. Here's how:

  • Lido focuses on small groups for teaching, ideally groups of 6.
  • They want to be a substitute for the tuitions in your colony or neighbourhood.
  • So, Lido is not preparing you to crack IIT-JEE or NEET, but they want to replace the lady who lives two blocks away and teaches English in her drawing-room to 5 students who live nearby.
  • They also focused on making their user interface fun for kids. For instance, they had 'gems' as rewards for completing homework, which can then be used to buy goodies on Lido store.

This market, according to Lido, is worth $15 billion and surely a lucrative space to be in.

Got it, so what went wrong?

The biggest reason that Lido had to shut down was because they ran out of money.

Take a look at their numbers for instance — Lido's revenue 3x'ed in a year from ~$500K in 2020 to $1.5 million in 2021. But they were also losing $5.7 million in 2020, which increased to $7.7 million in 2021!

Clearly, they needed more cash to burn. But they must already know this, so why didn't they raise more money?

Of course, they tried. In fact, they were expecting 2 major funding deals to go through but that didn't happen.

  • $100 million+ from China's ByteDance (TikTok's parent company) — India banned Chinese apps, and possibly this hampered the deal.
  • ~$10 million from's Mukesh Bansal — themselves had a huge setback since their fitness centers were shut due to Covid, so the deal didn't end up happening.

But you might be wondering why did they need so much cash in the first place? Also, they raised $10 million just 4 months ago, in September 2021. So where did all that money go?

There were deeper problems the company was facing already. And here's where we get into the real reasons for failure.

It isn't just the cash, it's much deeper

Lido was facing problems much before they ran out of cash.

1) Wrath of the pandemic

Lido's model of selling works similar to Byju's where salespeople visit homes to sell products physically. In fact, more than half of Lido's employees were such salespeople. Of course, with the pandemic, these salespeople weren't able to make their visits, and the growth took a huge hit.

2) Bad hiring decisions

During Covid, Lido had pay cuts of upto 50% for existing employees but they were also hiring for key roles at the same time. The new hires were mostly friends & family of the top management (source: anonymous employee interviews for Forbes)

These new hires also ended up burning cash in all the wrong areas — for instance, they ran ads on social media, where people were pouring in negative comments. Forget the ROI for ads, this damaged the brand name even further.

3) Unhappy customers

Now here's where everything broke down.

If Amazon is the epitome of customer obsession, Lido would be the exact opposite. Pick up any tweet from Lido's timeline and you'll see a flood of replies asking for refund and complaining about Lido's poor customer service.

In fact, this problem started much earlier. Customers were offered a 15-day free trial, wherein if people didn't like the classes, they could ask for a refund. But such refunds never came through. What's worse is that Lido's customer support didn't even respond to such queries.

All in all, the company already had its plate full of serious problems. But then, you'd wonder why Lido didn't fix all of these problems first, before looking for more money or expanding.

So why not solve for these problems?

Now, there have been arguments against the refund complaints. Some say that such refunds came with a condition that customers had to return the devices given to them and they never did before asking for refunds.

Be what may, if your customers are unhappy and at such scale, anyone would logically want to solve for it first, before thinking of taking the next big step.

However, with the $10 million funding that they raised in September 2021, Lido instead decided to spend it all on expanding to international markets. They opened up coding classes in the US & Canada, when their troubles at home were unsolved!

Finally, what do we learn from Lido's failure?

This entire episode makes us think that the ambition to scale is clearly clouding people's judgment. It doesn't take an Einstein to make this inference for Lido. Sadly, most startups operate on similar principles in some form where you aim to scale fast and have to raise & burn money even faster to do that. And if you can't do it for some reason, you're doomed.

But it's key to understand that "go big or go home" is NOT the only way to grow. In fact, it's insane to consistently think of scaling and compromising every aspect of your company to achieve it.

There is a sane way of growing and companies like Zerodha & Zoho have scaled patiently to where they are now. So it's a choice you need to make. Do you want to constantly worry about scaling to a billion dollars when you're still at zero OR do you want to grow consciously taking one step at a time?


Test your knowledge through a fun quiz!

Play quiz
You'll love these articles too!
Not everyone gets it! - CRED's Ad Spend
Not everyone gets it! - CRED's Ad Spend
India's newest ed-tech, unicorn startup is the opposite of BYJU'S!
India's newest ed-tech, unicorn startup is the opposite of BYJU'S!
Economic downturns can separate well-run startups from "hacks"
Economic downturns can separate well-run startups from "hacks"

Not everyone gets it! - CRED's Ad Spend

CRED is used to pay credit card bills instantly which earns users “CRED coins”. They can use these coins to claim rewards and benefits.

But, that’s not it. Only users with a high credit score are allowed to access CRED, which helps CRED build a network of financially trustworthy individuals.

What next? CRED can lay different business models on top of this network like rent payments & peer-to-peer lending.

So IPL ads are a way for CRED to acquire users at scale, to build this trusted network.

But these ads cost CRED a whopping INR 216 Crores! That's INR 1271 to acquire a new user!

Over a lifetime, if 5% of users generate revenue, each user will have to generate INR 25,420 to make CRED money.

India's newest ed-tech, unicorn startup is the opposite of BYJU'S!

It all started in 2012 when Sumeet Mehta, an IIMA grad & Smita Deorah, a chartered accountant moved from their cozy life in Singapore to India.
Both Sumeet and Smita were very passionate about helping young children from low-income communities.

When they realized that the major problem plaguing these communities was the broken schooling system, they decided to fix it!

They first approached this by starting schools in rural India. But, they soon realized that it wasn't enough to create a large-scale impact.

So, the couple took a different approach.
They started working to improve the curriculum of schools already operating, rather than opening new schools.
This entire concept gave birth to LEAD, as we know it today, in 2017!

LEAD vs Byju's - how are they different?
1) LEAD operates on the idea that students already spend a sizeable amount of time in school & tuition.

2) Sumeet & Smita realized that we don't need another 10-12 companies fighting for these students' attention. Instead, improving the schooling curriculum should be a priority.

3) So, LEAD's core offering is a full-fledged solution for private schools.

Well, LEAD is currently working with 2000 schools & ~800K students.
Here are their numbers: 1) Revenue — INR 57.1Cr 3) Net Loss — INR 126.1Cr
So, essentially LEAD spends INR 3.27 to make a single rupee! While it has managed to become India's newest ed-tech unicorn!

Economic downturns can separate well-run startups from "hacks"

To put it simply, during the last decade, Indian startups have been raising money left, right, and center.

Now, following this trend, just in the first 4 months of 2022, Indian startups have raised $14.3B in funding[2]. That is literally 2x of the money raised during the same period in 2021.

But, just when it seemed like the happy days would go on forever, a report predicting about a 19% fall in funding in Q2 of 2022 came through. VCs also starting to warn about an upcoming funding crunch!

The immediate effects of this development directly showed themselves via employee layoffs. And ed-tech industry was the first one hit!

Unacademy = 1000, 17% of workforce
Frontrow = 145, 30% of workforce
Vedantu = 600
WhitehatJr = 800

Now, the number ONE cause of this downturn is the Fed's decision to increase its interest rate from 0.75% to 1% as the inflation shot up to 8.5%. That's the highest in the last 40 years.

On top of this, the war in Ukraine and the prolonged lockdowns in China have disrupted the global supply chain, affecting the entire global order.

Now, following this problem, VCs are giving original advice to founders citing lessons from the Bootstrapped startups guide.

- Cut non-essential costs
- Explore more organic growth channels
- Revisit your unit economics
- Survival > Growth
- Revise assumptions on hiring
- Finally, take this seriously or you might drive your company off a cliff!