Blow hot, blow cold—that is how the relationship between Byju’s investors and its eponymous founder Byju Raveendran is currently playing out.
On Friday, Think & Learn, the parent company of the edtech unicorn, offered its investors a chance to invest in its rights issue at a 99% discount to its peak valuation. This will allow investors to protect their holdings by preventing the dilution that may come with the rights issue.
Byju’s reached its peak valuation of $22 billion in 2022. Over the past couple of years, its valuation has declined sharply, touching $200 million in January 2024.
In a letter to shareholders, Raveendran said despite the “animosity shown by some of the investors in pursuing uncalled-for legal actions”, the edtech wanted all stakeholders to be part of the revival strategy, including the consortium of investors who have hauled the company to court recently.
Industry watchers say this move comes at a time when Byju’s has been in protracted fire-fighting mode, dealing with unhappy customers, dissatisfied employees, upset investors and scrutiny from government agencies.
Patching things up with its disgruntled investors is part of its multi-pronged strategy to revamp things, they say, especially as a few of its top institutional investors have hauled it to court.
“It looks like Raveendran has realised that it is best to focus on what matters the most – raise funds to tide over a liquidity crisis rather than poke the bears i.e. its investors,” said a start-up founder, under conditions of anonymity. “It needs to disburse the salaries for its employees, which has been pending since February, and also meet other financial liabilities.”
He also noted that Byju’s cannot use the funds raised through the rights issue through the extraordinary general meeting (EGM). This is due to a court-approved stay where it has been asked to put $200 million in an escrow account until its legal matters are resolved. “However, these cash-raising efforts will send the right signal to its customers, vendors and investors that it is trying to get its house in order,” the start-up founder added.
The EGM on March 29 was aimed at increasing its authorised share capital through a $200 million rights issue. In his letter to shareholders, Raveendran said the edtech company has secured more than 50% votes through postal ballot. The result of this voting process will be known after April 6.
Incidentally, this is just two days after the National Company Law Tribunal (NCLT) in Bengaluru heard allegations by a group of Byju’s investors of mismanagement and corporate governance failings at the company. The quasi-judicial body refused to stay the company’s EGM on March 29 to supplement its authorised share capital and accommodate its $200 million rights issue.
In a separate development, the Karnataka High Court upheld the extension of the interim stay on the outcomes of an earlier EGM, convened by a consortium of investors seeking Raveendran’s ouster from his role as CEO.
This demand was made by Prosus, Peak XV Partners (formerly Sequoia India), and Meta founder Mark Zuckerberg’s Chan Zuckerberg Foundation last month.
They also sought a complete overhaul of the current board, comprising Raveendran, who holds around 17% stake in the company, his brother Riju, who holds 6%, and his wife Gokulnath who holds 3%.
Top investors backing the company include Prosus (9%), Peak XV Partners (7%), General Atlantic (6%), Sofina (5.7%), Tiger Global (3.5%) and Chan Zuckerberg Initiative (2.4%).
Last June, the triumvirate of Prosus, Peak XV Partners and Chan Zuckerberg Foundation resigned from the unicorn’s board flagging concerns about its governance practices.
In a statement, Prosus said, “Despite repeated efforts from our director, executive leadership at Byju’s regularly disregarded advice and recommendations relating to strategic, operational, legal, and corporate governance matters.
“The decision for our director [Russell Dreisenstock] to step down from the Byju’s board was taken after it became clear that he was unable to fulfil his fiduciary duty to serve the long-term interests of the company and its stakeholders.”
Further, Deloitte resigned as Byju’s auditor after the company delayed its annual filings for the 12 months ending March 2022.
When the financial reports were finally released, it showed that the company’s losses had almost doubled year-over-year to $990 million during the fiscal and that it had spent Rs 4,135 crore on advertising, an 84% increase from Rs 2,251 crore in 2021.
Cash-strapped Byju’s is in a race against time to survive, despite having implemented significant cost-cutting measures in recent quarters. It gave up all its offices pan-India, retaining only its headquarters at Bengaluru's Knowledge Park and later announced indefinite work-from-home for all employees, except those working at nearly 300 of its tuition centres in the country.
As per Layoffs.fy, the second round of layoffs at Byju's in 2023 affected approximately 2,500 employees. This was after the company laid off roughly 1,000 employees earlier in the year, along with another 600 from its affiliated companies.
But the measures felt too little too late to stem the fiscal bleeding at the company. To sustain its business operations, Byju’s had to augment its share capital by issuing new shares to investors and thereby secure additional capital.
“Given this background, the swift resolution of its ongoing dispute with its three key investors is critical for Byju’s,” explained the founder quoted above. “It will also clear the path for prospective fundraising initiatives and more importantly signify that the company is determined to preserve its financial equilibrium.”
Extending the olive branch by offering these investors a chance to invest in its rights issue might appear to be an uncharacteristic move for Raveendran, who having been at loggerheads with the investors, appeared unwilling to back down.
But the mellowing of his aggression indicates that he is doing his best to pull the company out of the financial and corporate governance quagmire it finds itself in.
“When the deck is stacked against you, one has to seek a truce, rather than belligerently threaten to throw an imaginary trump card,” said a venture capitalist, who has been tracking the goings-on at Byju’s since 2020, on conditions of anonymity.
Will Raveendran’s last-ditch attempt assuage its disillusioned investors? Especially as the founder has unabashedly admitted his “mistakes” and made no bones about his passion for Byju’s.
In his Friday email, he said, “I have always built Byju’s with a spirit of equality and equity, and it has never been my intention to leave any investor behind, regardless of their shareholding size.”
“From the very inception of this company, my vision has been to take everyone along, from one milestone to another. And it has always been my conviction that we will overcome our challenges together…Even my critics know that I have invested my everything, and even more, into this company…So, I hope that you will see the value in continuing with Byju’s in the same spirit with which you first joined our journey,” he wrote.
