Think & Learn Private Limited (“BYJU’s” or “Company”) has been in the news not just in the startup world but throughout the corporate and finance sector due to its long-drawn financial crisis which has been ongoing since 2021. The startup, once a unicorn, has since seen sharp drops in its valuations and is currently facing a severe cash crunch.
Recently BYJU’s had floated a rights issue in January 2024 to raise $200 million through equity rights issue at an enterprise valuation in the range of $220-250 million which is a 99% reduction in its peak valuation of $22 billion. In February 2024, the Company had announced that the rights offer had been fully subscribed and the founder-CEO Byju Raveendran committed to restructure the Company’s board of directors by the end of the quarter.
However, it seems many investors of the Company are not on board with the vision of the CEO and called for an Extraordinary General Meeting (EGM) through requisition on February 23, 2024 to address governance, financial mismanagement, compliance issues, reconstitution of the board of directors and a change in leadership over the founder, Byju Raveendran's involvement in the day-to-day management of the Company. The investors of the Company, including Prosus NV, Peak XV Partners, General Atlantic, and Sofina SA, have jointly filed a petition for oppression and mismanagement against the Company where the investors seek to (i) declare the founders unfit to run the Company; (ii) appoint a new board; (iii) declare the rights issue as void; and (iv) conduct a forensic audit.
On February 27, 2024, the Bengaluru bench of the NCLT directed the Company to keep the proceeds from its rights issue in a separate escrow account and not utilize the same until the oppression and mismanagement suit filed by the investors against the company's management is ongoing. The NCLT also directed the Company to consider extending the closure date of the rights issue to protect the petitioners' rights.
Simultaneously, the Enforcement Directorate (ED) has renewed its lookout notice against founder Byju Raveendran in relation to a violation of the Foreign Exchange Management Act, 1999 (FEMA) which was levied against the Company. The investigating authority of the case alleged that the Company violated FEMA provisions which led to a loss of INR 9,362.35 crores. The investigation was based on complaints regarding the foreign investment received by the Company; its business conduct, including significant foreign remittances and the Company’s investments outside India. The investigating authority also found that the Company and Byju Raveendran had contravened FEMA provisions on several counts, including failing to submit import documents against advance remittances made outside India.
With all sorts of governance, financial, regulatory and valuation problems gathering around the ed-tech company it will be pertinent to note the outcome of the crisis which shall act as a precedent for all the startups growing at a tremendous speed in the market at the cost of proper compliance and governance.