Byju Raveendran, the founder of edtech group Byju’s, made a last-ditch effort to appease disgruntled investors, including Prosus Ventures. He just informed them that the board is considering an offer of divested shares – shares that a group of investors recently chose not to buy in protest – to prevent their holdings from being diluted ahead of the ratification of a recent rights issue that reduces the Indian startup’s valuation by 99%.
At stake is the future of Byju’s, once the most valuable startup in India and the face of the local ecosystem. The crux of the dispute between Bengaluru-based startup Byju’s and several of its investors stems from a rights issue the startup launched in late January, after a year-long struggle to raise sufficient capital.
A rights issue is a way for a company to raise capital by offering existing shareholders the opportunity to buy additional shares at a discounted price, depending on their current holdings. By not participating in the rights issue, investors risk diluting their holdings in Byju’s to almost nothing.
Prosus, Peak XV, the Chan Zuckerberg Initiative were not involved in the rights issue and are currently fighting a legal battle with the Bengaluru-based startup to remove Raveendran from the company and void the $200 million he was able to raise through of the rights issue. Investors appealed to an Indian company court earlier this year which ordered Byju’s to move $200 million into an escrow account until the issues are resolved.
In an email to shareholders on Friday morning, a copy of which was reviewed by TechCrunch, Raveendran said the startup’s board is considering making the offer to disgruntled investors despite the “hostility” they have shown and the “necessary legal actions”.
Raveendran also informed the shareholders that the startup has already received over 50% votes required to increase the authorized share capital of the startup to give effect to the fully subscribed rights issue of $200 million. Byju’s held an extraordinary general meeting on Friday where it sought to pass the resolution on the rights issue. The outcome of the rights issue will not be known until April 6, and both parties are due to appear before the Indian company court again on April 4.
Byju’s is running against time even as it has cut costs in recent quarters. Byju needs the capital raised from the rights issue to sustain its business operations. Resolving the ongoing dispute with its investors is also crucial for the company to launch future fundraising efforts and maintain its financial stability.
“I have always built Byju’s in a spirit of equality and equity, and it was never my intention to leave any investor behind, regardless of the size of their holdings,” Raveendran wrote in Friday’s email. “Since the beginning of this company, my vision has been to take everyone together, from one milestone to another. And it has always been my belief that we will overcome our challenges together.”
Prosus, Peak XV and the Chan Zuckerberg Initiative abruptly resigned from Byju’s board last year over its governance practices, and Deloitte pulled the startup’s account. Prosus claimed last year that Byju’s was not “adequately developed for a company of this scale” and the Indian company “ignored the advice and recommendations” of its backers.
Byju’s is still reeling from the fallout from its aggressive expansion strategy during the pandemic. The startup, which had amassed a valuation of $22 billion as of early March 2022, has spent more than $2.5 billion to acquire nearly a dozen startups globally in just two years. The company had high aspirations to go public at a valuation of more than $40 billion, but its plans were disrupted by the dramatic reversal in market sentiment following Russia’s invasion of Ukraine.
Raveendran, for his part, admitted he made “mistakes” and is seeking another chance from his supporters to correct course. “Even my critics know I have everything, and more, invested in this company,” he wrote Friday. “Well, I hope you will see the value in continuing with Byju’s in the same spirit in which you first joined our journey.”
Story updated with additional details.
