Byju’s Founder Seeks Investor Support Amid Crisis

Byju Raveendran is working to appease irate investors such as Prosus Ventures by proposing renounced shares to avoid diluting their holdings.

The creator of the troubled edtech company Byju’s, Byju Raveendran, has made a desperate effort to appease irate investors, notably Prosus Ventures. He just told them that in order to avoid diluting their holdings before confirming a recent rights issue that reduces the Indian startup’s valuation by 99%, the board is considering an offer of renounced shares, which are shares that a group of investors recently decided not to purchase in protest.

The survival of Byju’s, formerly India’s most valuable startup and the face of the community, is in jeopardy. After a year-long effort to collect enough funding, the Bengaluru-based startup Byju’s began a rights issue in late January, which is at the heart of the conflict between the startup and several of its investors.

By providing present shareholders with the option to buy additional shares at a reduced price in proportion to their current holdings, a firm can acquire capital through a rights issue. Investors who choose not to participate in the rights issue run the danger of having their Byju’s ownership diluted to nearly nothing.

Prosus, Peak XV, and the Chan Zuckerberg Initiative declined to participate in the rights offer and are currently involved in legal proceedings against the Bengaluru-based business, aiming to remove Raveendran from the company and invalidate the $200 million the initiative managed to raise. Earlier this year, the investors brought their case before an Indian business court, which directed Byju’s to transfer $200 million to an escrow account until the issues are settled.

Raveendran stated that the startup’s board is considering making the offer to irate investors despite the “animosity” they have shown and their “uncalled for legal actions” in an email to shareholders sent out on Friday morning, a copy of which was seen.

Additionally, Raveendran informed the shareholders that the firm has already received more than half of the necessary votes to raise its authorized capital and execute the fully subscribed $200 million rights issue. At an extraordinary general meeting on Friday, Byju’s tried to pass a resolution about the rights issue. The Indian business court has scheduled the two parties to appear again on April 4, but the outcome of the rights issue won’t be known until April 6.

Despite cutting costs in recent quarters, Byju’s is running out of time. Byju’s needs the money from the rights issue to sustain its business operations. Initiating future fundraising attempts and preserving the company’s financial health also depend on resolving the ongoing disagreement with investors.

In an email on Friday, Raveendran stated, “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.” Since the company’s founding, my goal has been to guide everyone through each milestone as we go forward. And I’ve always believed that by working together, we can conquer our obstacles.

Due to Byju’s governance procedures, Prosus, Peak XV, and the Chan Zuckerberg Initiative abruptly withdrew from the board last year, and Deloitte terminated the startup’s account. Byju’s did not “evolve sufficiently for a company of that scale,” according to Prosus, and the Indian company “disregarded advice and recommendations” from its backers, according to the allegations made last year.

As a result of its ambitious expansion plan during the pandemic, Byju’s is currently suffering. In just two years, the startup—which by early March 2022 had reached a valuation of $22 billion—spent more than $2.5 billion acquiring almost a dozen firms around the world. The sharp shift in market opinion following Russia’s invasion of Ukraine derailed the company’s aspirations to go public at a valuation of over $40 billion.

For his side, Raveendran has acknowledged that he made “mistakes” and is asking his supporters to give him another chance to make the necessary corrections. He stated on Friday, “Even my detractors understand that I have put everything—and even more—into this business.” Thus, I’m hoping you’ll recognize the benefits of sticking with Byju’s with the same mindset that brought you along for the ride.