For Byju's, the past year has been eventful to say the least.
Searches by the Enforcement Directorate, valuation cuts by prominent investors, a legal battle with lenders over repayment terms, layoffs, delayed financial results, the group's IPO and funding stuck in limbo, it was full of troubles.
The spate of bad news for the edtech startup will make it tough to raise fresh funds, which could prompt further valuation cuts for the company, whose valuation has fallen by half to about $11 billion in the last down-round. The implications could well go beyond Byju's, as investors focus on profitability and governance.
Drama with ZERO Content … not even a netflix or HBO will buy it 🤦♂️🤦♂️. While sullying India's name as a great investment destination !
Wonder what it's erstwhile Board thinks of their fiduciary duties 🤔 - just asking 🤔 https://t.co/mnXQMZygnUThe company's troubles make one wonder if strategies and positions adopted by it were taken up without fully assessing if they aligned with the fundamentals of the business, according to Deepak Joyce, founder at JoyceLaw, a boutique law firm focused on the startup ecosystem.
"Public reports also seem to suggest that the ED findings included instances of oversight in completing certain process/filing compliances related to inbound and outbound investment transactions," he said.
The Byju's saga could lead investors in future rounds to consider whether the company was overvalued, according to Joyce.
"This could become an important consideration in future funding rounds of other ventures, which got rich valuations in the funding boom," Joyce said. "I anticipate that investors would start monitoring their investee companies more closely, especially on financial discipline and governance."
Developments at Byju's can "significantly impact" the sentiment within the Indian startup ecosystem, particularly in the edtech sector, said Gaurav VK Singhvi, angel investor, managing partner at Avinya Ventures and co-founder at WeFounder Circle.
Other edtech startups may feel the effects of diminished investor confidence, cautious funding decisions, or increased scrutiny from regulatory authorities, according to him.
First signs of trouble appeared a year ago as startups began to cut costs, as funding became tight after the pandemic-driven euphoria.
Here's what transpired at the Bengaluru-based edtech giant over the past year:
June 2022: Byju's Firms Toppr, WhiteHat Jr Cut Staff
In June 2022, in the first round of tech layoffs of the year, Byju's-acquired edtech firms Toppr and WhiteHat Jr cut 500 jobs.
Byju's said the cuts were made "to recalibrate business priorities and accelerate long-term growth".
September 2022: Byju's Posts Heavy Loss For FY21
Around six months later, Byju's finally released its much-anticipated earnings for the previous fiscal after a delay.
Think & Learn Pvt. Ltd., the edtech company's parent, reported a net loss of Rs 4,588 crore in FY21, a thirteenfold increase. At Rs 2,430 crore, revenue was little changed from the previous 12 months.
The company said there was significant business growth in FY21 over FY20, but 40% revenue was deferred due to “Covid-related business model change”.
Byju's said it has received an unqualified report for FY21 from its auditor, Deloitte Haskins & Sells. "The rationalised growth between FY21 and FY20 is a result of the changes made in the way Byju's recognises its revenue, as advised by its auditors."
By this time, the company was under regulatory pressure to report financial statements, after missing a deadline for several months. It also faced delays in securing more funding and completing a planned merger with a special purpose acquisition company in the U.S. for an IPO, after a global technology rout hit valuations.
October 2022: Byju's Cuts 5% Staff
A month after releasing its FY21 earnings, Byju's said it will cut nearly 2,500 jobs across different functions, in an attempt to avoid redundancies. The company's "top priority" was to achieve overall profitability by March 2023, it said.
Byju's said it would use a three-pronged approach for profitability:
Consolidating all its K-10 India subsidiaries into one unit to leverage their synergies.
Aakash Education and Great Learning to operate as standalone independent units.
Re-targeting marketing budget towards its overseas markets.
The steps were also meant to prepare the path for a "stellar listing as the world's largest edtech company that has turned profitable, eventually", Chief Operating Officer Mrinal Mohit said.
October 2022: Fresh Funding
The company said it had secured $250 million, or around Rs 2,000 crore, from existing investors, days after it announced it would sack 2,500 employees.
Byju's did not disclose the valuation at which it raised the funding, though its previous round was done had valued it at $22 billion. Nor did it reveal the name of the investors.
The edtech platform's Founder and Chief Executive Officer Byju Raveendran said the capital that will now be invested "will result in profitable growth".
November 2022: Prosus Cuts Valuation Internally
Byju's valuation was reclassified by Prosus NV, a significant minority shareholder, in its books in what turned out to be the first in a series of at least three down-rounds.
It pegged the fair value of its 9.67% stake in Think and Learn at $578 million as of September 2022. That pegged Byju's valuation at $5.97 billion—a steep discount from $22 billion at its latest funding round.
The fair value of the group's Byju's investment was determined through a third-party firm, Prosus told BQ Prime in an email.
December 2022: Byju's Asked To Repay Part Of $1.2 Billion Loan
Lenders that had advanced about $1.2 billion to Byju's asked the company to immediately repay part of the loan they recently bought into, as they renegotiated terms of the debt, according to Bloomberg.
Byju's had taken the loan sometime in December 2021.
The consortium of lenders said the edtech giant breached terms, including a September deadline for filing its results for the year ended March 31, 2022. It demanded that the company use its U.S. unit's cash reserves of about $850 million to pre-pay part of the year-old loan.
January 2023: Byju's Enters Loan Restructuring Talks With Lenders
Byju's had sought more time from lenders to renegotiate an agreement governing the $1.2 billion loan, that is in breach of covenants, Bloomberg reported.
Byju's was scrambling to appease creditors and investors, the report had said. It had offered to raise fresh equity capital and provide creditors a so-called quality of earnings report and cash verification statements by external auditors.
April 2023: Now, BlackRock Cuts Valuation
Four months later, another prominent minority investor, BlackRock Inc., cut the valuation of its holding in Byju's.
BlackRock valued the shares of Think & Learn at around $4,300 apiece, or Rs 3,56,000 each, giving it a valuation of $24.2 billion as of July 1, 2022, according to data from Tracxn Technologies.
However, as on March 29, 2023, the value of each share of the firm had fallen to about $2,400, or Rs 1,97,000 apiece, according to filings with the U.S. Securities and Exchange Commission. The company's value halved in less than a year to about $11.3 billion.
April 2023: New CFO Brought In
Byju's appointed Ajay Goel as the chief financial officer after the position had been vacant for around 16 months.
Goel was the group deputy CFO of Vedanta Resources Ltd. prior to his appointment. His predecessor, PV Rao, quit in December 2021.
"As CFO, Ajay will be responsible for overseeing financial strategy and management for Byju's," the company had said in a statement. "He will work closely with the founders and the senior leadership on strategy development, capital planning and financial analysis."
April 2023: ED Conducts Searches On Byju's' Premises
The Enforcement Directorate conducted searches on three premises of the edtech company, in Bengaluru.
The agency said on its Twitter handle that various incriminating documents and digital data were seized during the search.
One residential and two business premises of Byju's were searched, according to an ED release. "FEMA searches revealed that Byju's has received foreign direct investment to the tune of around Rs 28,000 crore during the period from 2011-2023."
During the investigation, several summons were issued to Founder and CEO Byju Raveendaran, the ED said. However, he "always remained evasive and never appeared for investigation".
May 2023: Legal Battle Over $1.2 Billion Term Loan
The negotiations that Byju's and lenders had entered in January fell through and Byju's U.S. unit, Byju's Alpha, was taken to a Delaware court by an agent of lenders Glas Trust Co. and investor Timothy R. Pohl.
The lenders accused Byju's of "hiding" $500 million and had sought control of the unit, saying they have the right to put their representative since Byju's had defaulted.
The company said it has fulfilled all its contractual payment obligations as agreed upon in the Term Loan B signed in 2021 and has not missed a single payment thereafter. The defaults that the lenders are claiming concern "insignificant technical and non-monetary defaults", it said.
It denied allegations of Byju's having moved $500 million from Byju's Alpha. The edtech also confirmed the completion of a recent $250-million funding round.
June 2023: Byju's Files Suit Challenging Lenders, Skips Payment
Byju's filed a complaint in the New York Supreme Court to "challenge the acceleration" of the $1.2 billion term loan and to disqualify Redwood, an agent of the lenders, for allegedly indulging in a series of "predatory tactics."
The case by Byju's came a day after Bloomberg reported that it faced a deadline day on June 5 to make a quarterly interest payment of $40 million on the term loan. It skipped that obligation and said won't be making any further payments in the term loan, as legal proceedings were ongoing in Delaware and New York.
June 2023: Byju's Announces Aakash IPO Timeline
The company announced Aakash Education Services Ltd.'s initial public offering timeline on the day of the deadline for making a $40 million quarterly interest payment on the $1.2 billion loan.
The board approved the IPO to be launched by the middle of next year.
"The appointment of the merchant bankers for the IPO will be announced soon to ensure a planned and successful listing next year. The upcoming IPO will provide a significant capital infusion, to bolster Aakash's infrastructure, broaden its reach, and extend high quality test-prep education to a larger number of students across the nation," it said.
June 2023: Another Round Of Layoffs
In the middle of a standoff with lenders over the $1.2-billion loan repayment, Byju's fired around 1,000 permanent employees.
The company is cutting roles across departments such as logistics, training, sales, and finance, according to a person familiar with the development, who spoke on the condition of anonymity.
June 2023: Deloitte Quits As Auditor; Reports Suggest 3 Board Members Also Exit
In another major blow, Byju's auditor Deloitte Haskins & Sells resigned as its auditor, citing "long delayed" financial statements.
"We have not been able to commence the audit as on date. As a result, there will be significant impact on our ability to plan, design, perform and complete the audit in accordance with the applicable auditing standards," Deloitte said. "In view of the aforesaid, we are tendering our resignation...with immediate effect."
Byju's appointed MSKA & Associates, the audit arm of the accounting major Binder Dijker Otte, as the statutory auditor of holding company Think and Learn and its material subsidiaries, such as Aakash Education Services Ltd., as well as the overall group consolidated results for five years starting FY22.
Separately, on Thursday, reports emerged that three key board members of Byju's had resigned, citing differences with the management.
Peak XV's GV Ravishankar, Prosus' Russell Dreidenstock, and Chan Zuckerberg's Vivian Wu have tendered their resignations, according to reports. A Byju's spokesperson called these reports "entirely speculative".
With a turbulent last year, it remains to be seen whether Byju's new CFO and the newly-appointed auditors can help take the edge off the criticism it has received for its weak financial reporting and governance.
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