India’s National Company Law Tribunal Restrains Byju’s from Proceeding with Second Rights Issue
Byju’s, once the world’s most valuable edtech startup, is facing a tough time raising the full $200 million from its rights issues that its founder had previously claimed was oversubscribed. Sources familiar with the matter have told TechCrunch that the company is struggling to raise the funds.
Background on Byju’s Struggles
Byju’s fortunes started fading some time ago, along with the post-pandemic tailwinds that spurred it to its heights. However, things started heading seriously downhill last year when Prosus, Peak XV, and Chan Zuckerberg Initiative resigned from the company’s board, citing problems with its governance practices. Deloitte also dropped the startup’s account.
Prosus had said that Byju’s did not "evolve sufficiently for a company of that scale," and the Indian firm "disregarded advice and recommendations" from its backers. The investors have sought to remove the company’s founder and chief executive, Byju Raveendran, from the firm.
Allegations of Oppression and Mismanagement
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. Byju’s has been directed to provide details of the allotment and keep all the funds raised in a separate escrow account.
Rights Issues: A Complex Process
A rights issue allows companies to raise capital by giving shareholders the opportunity to purchase additional shares at a discount, in proportion to their current stake. However, this process can be complex and fraught with challenges.
Byju’s had launched its first rights issue in late January, but a court order directed the company to not tap the funds it had raised through that rights issue after many of its investors opposed the fundraise. The Bengaluru-headquartered startup had launched the fundraise after struggling to raise cash amid allegations of lapses in corporate governance.
Impact on Byju’s Valuation
The first rights issue pretty much demolished Byju’s valuation to about $25 million, which is an astonishing decline from the $22 billion price tag the startup once enjoyed. The company recently sought to raise money again from another rights issue as it scrambled to pay employees and continue operations.
Thursday’s Court Order: A Blow to Byju’s
The court order comes after BlackRock wrote off its investment in Byju’s, giving the Indian firm an implied valuation of zero. Thursday’s court order is the latest episode in the spectacular collapse of Byju’s, once one of India’s most valuable startups.
What’s Next for Byju’s?
The company will have to wait until a petition filed by two of its investors, General Atlantic and Sofina, has been dealt with before it can proceed with its second rights issue. The court order also directed the company to maintain status quo on its existing shareholdings.
Byju’s spokesperson did not respond to a request for comment. However, in a letter to shareholders in February, Raveendran urged his estranged investors to give him another chance and participate in the rights issue.
The Participation of All Shareholders
In the letter, he wrote: "Our rights issue is fully subscribed, and my gratitude to my shareholders remains strong. I urge all shareholders to participate in this rights issue and help us achieve our goals."
However, with Thursday’s court order, it seems that Byju’s will have to wait a while longer before it can proceed with its plans.
What This Means for Investors
The implications of this development are significant for investors who had invested in Byju’s. The company’s valuation has taken a hit, and the uncertainty surrounding its future is likely to impact investor confidence.
Conclusion
Byju’s struggles are a reminder that even the most successful startups can stumble. The rights issue process is complex and fraught with challenges, and companies need to navigate these complexities carefully.
The court order is a blow to Byju’s plans, but it also gives investors hope for a more stable future. As the company waits for the petition to be dealt with, one thing is certain: only time will tell what the future holds for Byju’s.
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