6 mins read . 28 Jun 2023
In the latest news report, Byju’s is trying to raise funding of $1 billion from select investors. However, the signals coming from Byju’s in the last few months are not good. They have been downsizing staff very aggressively. On top of that, Byju’s defaulted on its loan repayment tranche over a technical issue, which is still pending in the US courts. At a recent meeting with its75 key shareholders, Byju’s had a tough time convincing them that the valuations were still intact. Expecting the valuation of Byju’s to still be at $22 billion may be optimistic, especially if you consider the big write-offs that major institutional investors in Byju’s have already provided for. For Byju’s there are two choices. Either the promoters raise funds quickly and address the corporate governance issues or they risk losing control over the company.
We all saw what happened in the case of Flipkart. When the large investors were unhappy with the way the Flipkart founders were taking on the Amazon challenge, they brought in Kalyan Krishnamurthy to replace the promoters, who eventually moved out after Wal-Mart took control. Byju Raveendran has close to 19% stake in Byju’s, so he is better off than the founders of Flipkart. However, with the valuations of Byju’s sharply lower, raising about $1 billion would mean substantial dilution of promoter holdings. Also, the institutions hold close to 65% in the company and their patience is already wearing thin. Byju’s has to answer a number of questions very quickly and convincingly if the institutional investors have to feel comfortable with the current dispensation. What does that require?
That is the first big challenge for the company. In the last few months, Byju’s has been spending most of its time fighting one crisis after another. That has detracted them from their core growth strategy. Byju’s has to be clear whether their future growth is going to be driven by organic or inorganic means. Of course, the price they pay for these buys will also matter. On the organic front, the company has been gradually losing focus on its core content and that has to come back. People still go to edtech companies for the quality of the content offered. That cannot be substituted with aggressive on-the-face marketing. However, there is a much bigger challenge for Byju’s and that is on the corporate governance front.
The real challenge for Byju’s would be addressing the governance challenge at the company. It all begins with the discipline of filing statutory reports on time. Byju’s filed its FY21 financial results nearly 20 months late. It is yet to file its FY22 earnings numbers, at a time when most of India Inc has already filed FY23 numbers. It has now promised to file the FY22 numbers by September this year, but such delay is absolutely inexplicable. Then, there is the more serious issue of its debt default over a disputable clause as well as allegations by creditors that Byju’s had hidden funds raised in the recent round to avoid paying the creditors. In the area of governance, it is the perception that matters more than the reality and at this point, the perception is not good at all. Governance is something Byju’s will have to address immediately.
For Byju Raveendran, the choice is between getting the act together quickly and losing control. With 19% stake, Raveendran still exercises clout, but that may not matter much if the institutions act as a single unit. This time around, Byju’s must deliver on its fund raising commitments, avoid loan defaults and quickly make up for the governance and disclosure lapses. Apparently, most investors still believe in edtech as an industry and the ability of Raveendran to pilot the company. The promoters have to make the best of this trust reposed on them. Options are getting limited and Byju’s has to quickly deliver on promises.