Almost a year after Dutch venture investment fund, Prosus, asked its director on the board of its investee company Byju’s to step down, it has taken the inevitable decision: write off its entire investment of $563 million in the edtech company. In a damning statement, Prosus said “We have written down Byju’s primarily because we have inadequate information on company’s financial health, liabilities, and future outlook.”
That means it’s just a matter of time before the other investors, too, write down their investment value in Byju’s to zero. After all, they will now be hard-pressed to explain how they still see value in Byju’s when other co-investors have come to the inevitable conclusion that the Byju’s story is over.
A month ago I had written a piece on Byju’s Baffling Silence questioning the founders’ silence, even as the company comes crashing down around them. While discussing the piece after it was published, a seasoned private equity investor friend who I rate among the best in the country asked a simple question: “Why aren’t the promoters in jail?” The only answer we could think of is that the money in question is not from Indian public or banks, but foreign investors. Had Byju Raveendran, his brother Riju and wife Divya borrowed money from an Indian bank and then diverted it to some other company and defaulted on repayments (like they have done in the US), they would have been under investigation by the CBI for fraud.
That begs the question, “don’t foreign investors—albeit of ‘risk’ capital—deserve better protection?” At least since July 2023, Byju’s investors have been fighting to oust the promoters. Their call for an EGM to vote on ouster of the founders was dismissed by Byju’s on the grounds that the shareholder agreement did not give investors the right to change the company’s chief executive or management.
Legally, this is perverse and blatantly against the interest of shareholders. Experts are of the opinion that any provision of a shareholder agreement that is contrary to the Companies Act 2013 will eventually be struck down by the courts. As per the Companies Act, any shareholder group with at least 10% ownership can call for an EGM, vote to remove a director, and initiate proceedings of oppression and mismanagement—something Byju’s stands accused of by its institutional shareholders.
The only small win for investors like Prosus has been the National Company Law Tribunal (NCLT) order of June 12 blocking Byju’s access to $200 million rights issue, which (pre-money) valued the company at a minuscule $20 million compared to its historic high of $22 billion as recently as 2021. (The investors have alleged that this was done to dilute them out of the company.) The court has directed Byju’s to park its proceeds in a separate account until the main petition filed by the consortium of investors (besides Prosus, it includes Peak XV Partners, Sofina, and General Atlantic Singapore) is heard and a verdict announced.
What NCLT needs to do now is to fast-track the main petition so that whatever value is left in Byju’s and its subsidiaries can be salvaged by a non-founder management. It may well turn out that in aggregate there’s isn’t much to salvage. And that would be truly astounding for a tutoring company that has raised $5 billion—a whopping Rs 41,500 crore at today’s exchange rate.
In the end, the most valuable lesson that Byju’s may have taught, not its paying K-12 students, but students of management is how not to run a start-up.
Once feted as India’s hottest start-up, Byju’s will possibly go down in corporate history as a case study in how NOT to run a venture—a $5-billion lesson, if you will. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
