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Journalism of Courage
Byju Raveendran, founder and CEO of Byju’s, wrote to employees over the weekend, blaming the non-payment of their salaries on investors on whose plea the National Company Law Tribunal has blocked access to $200 million that the company raised through a rights issue of shares in January.
Meanwhile, proceedings are ongoing in the US on the whereabouts of $533 million that Byju’s had parked with a Florida-based wealth manager, amid allegations that the money has been siphoned off. However, the company said in a statement that the money was transferred to its subsidiary and not siphoned off.
A couple of years ago, Raveendran was the shining poster boy of Indian startup entrepreneurs. Byju’s was valued at $22 billion, or around Rs 182,000 crore.
Today, Think & Learn Pvt Ltd, Byju’s parent, is in urgent need of funds, and faces huge financial losses, a barrage of legal suits, and massive investor backlash. Its valuation has fallen below $1 billion (Rs 8,300 crore), and investors are pushing to oust Raveendran and members of his family from the company.
A dizzying climb…
Raveendran, who has a BTech degree from a government engineering college in Kannur, Kerala, worked for a shipping company before starting a coaching business in 2007 and, four years later, Byju’s. In 2015, Byju’s launched its flagship learning app, and went on an expensive marketing blitz, signing up Shah Rukh Khan as brand ambassador in 2017. Between 2016 and 2020, the company got funding from global investors such as General Atlantic, Chan-Zuckerburg Initiative, BlackRock, and Sequoia Capital.
In 2022, the company said it planned to double the number of Byju’s Tuition Centres (BTCs) from more than 250 to 500 by the end of the financial year. It claimed to be “the world’s leading edtech company…with over 150 million registered learners globally”.
Byju’s was the jersey sponsor of the Indian cricket team from 2019 to 2023, and an official sponsor of the FIFA World Cup in Qatar in 2022. Ahead of the World Cup, the company signed superstar Lionel Messi as the global brand ambassador of its social impact arm.
…And precipitous decline
Byju’s financial results for FY2022, which were announced after a delay of 18 months, were dismal. The company is yet to declare its results for the year ended March 2023.
Despite laying off around 5,000 employees and making massive expenditure cuts over the past year, Byju’s valuation has been in free fall, and the company has defaulted on loans taken from US lenders. In June 2023, Byju’s auditor Deloitte Haskins & Sells resigned, citing the inability to finalise reports for the financial years ended March 2021 and March 2022.
Lenders have moved the NCLT and court in the US over the repayment of $1.2 billion taken by the company’s US subsidiary Byju’s Alpha, leading to valuation loss. NCLT has directed Byju’s to keep the proceeds from its rights issue in escrow until it disposes of the “oppression and mismanagement” plea filed by investors.
At an extraordinary general meeting (EGM) last month, a group of investors passed resolutions for the removal of Raveendran, his wife Divya Gokulnath, and brother Riju Raveendran from the company’s leadership. The validity of the resolutions is now before the Karnataka High Court.
Poor financial decisions
Between 2017 and 2021, the company made six acquisitions that did not generate the anticipated cash. Byju’s raised more than $5 billion in equity and debt from various global investors, and used about half in acquisitions in 2021 and 2022. Its $940 million acquisition of Aakash Educational Services Ltd in 2021 ran into trouble on the issue of stake transfer.
While the company progressed rapidly during the Covid years of 2020-21, growth was hit as offline classes resumed. Problems began to compound rapidly from 2022 as the full lifting of pandemic-time restrictions, along with geopolitical tensions and rate increases, battered the edtech sector.
Aggressive marketing campaigns, expensive acquisitions, and financial mismanagement impacted Byju’s bottom line. The company’s losses more than doubled to Rs 8,245 crore for the fiscal ended March 2022 from Rs 4,564 crore a year ago.
Questionable funds use
Byju’s says the success of the $200 million rights issue will ensure that it has sufficient operational capital to fund short-term needs from March onward. “All we need to do is fight with our leader. We have written to all the shareholders in Byju’s to express our steadfast commitment,” the company said in a note.
To ensure transparency on the use of funds raised through the rights issue, the company will appoint a third-party monitoring agency that will report to shareholders on a quarterly basis, within 45 days from the end of the quarter, Raveendran said in a letter to shareholders.
Raveendran’s fate as the head of the company will depend on the Karnataka High Court’s decision on whether the EGM convened by the shareholders was legal. If the court finds the EGM’s decisions to be valid, Raveendran and family will have to exit the company he founded.
The insolvency case in the NCLT will also be crucial. Even if Byju’s gets a favourable verdict in the HC, the NCLT proceedings will decide the fate of both the company and Raveendran. The survival of Byju’s will depend on the rights issue.
