Byju’s Seeks New Investors in $1 Billion Funding Drive Amidst Investor Tensions

Byju’s, which has been actively seeking fresh funds for several months, aims to conclude the fundraising round within the next two weeks.

Byju’s, the Indian edtech firm, is engaged in advanced discussions with potential new shareholders for a significant $1 billion fundraising round. The company aims to secure the funds in order to counter attempts by certain investors to reduce founder Byju Raveendran’s control over the struggling startup. Byju’s is offering attractive incentives such as preferential treatment in the event of liquidation, to entice new backers. Sources familiar with the matter, who requested anonymity due to the confidential nature of the information, revealed that none of the existing shareholders currently hold a liquidation preference.

Byju’s, which has been actively seeking fresh funds for several months, aims to conclude the fundraising round within the next two weeks. However, it remains uncertain whether Raveendran will succeed in securing the much-needed capital infusion. This fundraising effort is crucial for his broader campaign to retain control of a startup that was once valued at $22 billion but has faced challenges in the post-Covid online education market. Byju’s experienced setbacks such as missed deadlines for filing financial results and an interest payment on a $1.2 billion loan.

In recent weeks, powerful shareholders and creditors, including Peak XV, Prosus NV, and the Chan-Zuckerberg Initiative, resigned from Byju’s board, exacerbating the erosion of trust within the company. The departure of these influential backers, along with the resignation of Deloitte Haskins & Sells as Byju’s auditor, further highlighted the internal discontent within the company.

Several investors have expressed dissatisfaction and have been pushing to curtail Raveendran’s privileges, which were granted through a shareholder’s agreement. These privileges include a right of first refusal on investors looking to sell their stake. According to sources, some investors have contemplated various options, such as merging certain segments of Byju’s with competitors through equity deals.

Despite the challenges, Raveendran enjoys support from some existing shareholders who collectively hold a significant voting bloc. To pacify the dissenting shareholders, Raveendran and Chief Financial Officer Ajay Goel recently conducted a call, assuring investors that the fundraising efforts are progressing as planned and that long-awaited financial accounts will be finalized soon.

However, prolonged delays in completing the equity-raising process could jeopardize Raveendran’s control over the company. The ongoing dispute with Byju’s lenders over the $1.2 billion term loan, resulting from the company breaching the terms of its debt agreement, further adds to the challenges. Byju’s recently decided to skip an interest payment on the loan and filed a lawsuit in New York, alleging that a group of investors orchestrated a fake debt crisis to extort money from the firm.

In addition to investor discontent, Indian regulators are scrutinizing Byju’s following the delayed submission of financial statements and the auditor’s resignation. Raveendran plans to reconstitute the board only after the fundraising process is complete, as the new investors would likely fill some of the vacant board seats. A spokesperson for Byju’s declined to comment on the fundraising activities or any internal disputes among investors.

The company currently holds approximately $900 million in cash reserves, and it intends to allocate a portion of the potential fresh funds to repay the disputed $1.2 billion term loan. Market data indicates that the loan is being quoted at 63.8 cents on the dollar, suggesting a distressed status, as levels below 70 are typically considered distressed.