Byju’s Fundraiser Stalls: Court Stops Second Rights Issue

Byju’s, the world’s once most valuable edtech startup, is facing major challenges in its latest effort to raise $200 million through rights issues. According to sources familiar with the matter, the company’s founder had previously claimed the oversubscription of the rights issue, but is now struggling to secure the full amount.

The startup has also been ordered by India’s National Company Law Tribunal to halt its second rights issue due to allegations of oppression and mismanagement from its shareholders. The court has further directed Byju’s to maintain status quo on its existing shareholdings until a petition filed by two of its investors, General Atlantic and Sofina, has been resolved.

“Rights issues allow companies to raise capital by giving shareholders the opportunity to purchase additional shares at a discount, in proportion to their current stake.”

Byju’s first launched its rights issue in late January, but faced opposition from many investors and was ordered by the court to not utilize the raised funds. This came amidst accusations of lapses in corporate governance, leading to a significant decline in the company’s valuation from an impressive $22 billion to a mere $25 million. The startup’s recent attempt to raise funds again through another rights issue has now been put on hold.

This turn of events is just the latest in the downfall of Byju’s, which until recently was backed by influential investors such as BlackRock, Prosus, Peak XV, UBS, Bond, Sands Capital, Verlinvest, Tencent, Canada Pension Plan, Tiger Global, and World Bank’s IFC. The startup had ridden the post-pandemic tailwinds to reach new heights, but has since experienced a steady decline.

In the past year, Byju’s has faced serious setbacks including the resignation of three major investors from its board due to issues with corporate governance practices. Additionally, accounting firm Deloitte also terminated its association with the startup. Prosus, one of the major investors, criticized Byju’s for not evolving sufficiently despite its scale and disregard for the advice and recommendations of its backers. These investors have even called for the removal of Byju’s founder and CEO Byju Raveendran from the company.

“Some investors, including Prosus and Peak XV, also accused Byju’s of violating an earlier court order and allotting shares to some shareholders despite their pending case.”

The court has directed Byju’s to provide details of the allotment and to keep all the raised funds in a separate escrow account. However, the exact amount raised by Byju’s in the first rights issue remains undetermined. The startup’s spokesperson did not respond to requests for comment.

In February, Raveendran wrote a letter to shareholders expressing his gratitude for their support and urging his estranged investors to participate in the rights issue.

“But my benchmark of success is the participation of all shareholders in the rights issue. We have built this company together and I want us all to participate in this renewed mission. Your initial investment laid the foundation for our journey and this rights issue will help preserve and build greater value for all shareholders.”

However, the recent court order comes after BlackRock’s decision to write off its investment in Byju’s, resulting in an implied valuation of zero for the Indian firm.