Byju’s founder floats share offer to make peace with estranged investors

Byju Raveendran, the founder of embattled edtech group Byju’s, has made a last-ditch attempt to placate the company’s disgruntled investors, who include Prosus Ventures. The company’s board is weighing an offer of renounced shares — shares that a group of investors chose not to buy recently in protest — to prevent the dilution of the investors’ holdings ahead of validating a recent rights issue that cuts the Indian startup’s valuation by 99%.

At stake is the future of Byju’s, once the most valuable startup in India and the face of the local ecosystem. The dispute between the Bengaluru-based startup and its investors stems from a rights issue that the startup initiated in late January, following a year-long struggle to raise funds.

Rights issues allow companies to raise capital by giving shareholders the opportunity to purchase additional shares at a discount, in proportion to their current stake. By not participating in the rights issue, the investors are risking getting their holdings in Byju’s diluted down to almost nothing.

Investors Prosus, Peak XV, and the Chan Zuckerberg Initiative didn’t participate in the rights issue, and are currently in a legal battle to remove Raveendran from the firm and invalidate the $200 million it raised through the rights issue. The investors reached an Indian company court earlier this year that ordered Byju’s to move the $200 million to an escrow account until the matters are resolved.

In an email to shareholders on Friday morning, a copy of which TechCrunch has reviewed, Raveendran said the startup’s board is contemplating making the offer to disgruntled investors despite the “animosity” they have displayed and their “uncalled for legal actions.”

Raveendran also informed the shareholders that the startup has already received over 50% of the votes required to increase the authorized share capital in the startup to bring into effect the fully-subscribed $200 million rights issue. Byju’s held an extraordinary general meeting on Friday, where it attempted to pass the resolution over the rights issue. The result of the rights issue won’t emerge until April 6, and the two parties are set to appear before the Indian company court again on April 4.

Byju’s is running against time even though it has slashed costs in recent quarters. Byju’s needs the capital raised from the rights issue to sustain its business operations. Resolving the ongoing dispute with its investors is also crucial for the company to initiate future fundraising efforts and maintain its financial stability.

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“I have always built Byju’s with a spirit of equality and equity, and it has never been my intention to leave any investor behind, regardless of their shareholding size,” Raveendran wrote in the Friday email. “From the very inception of this company, my vision has been to take everyone along, from one milestone to another. And it has always been my conviction that we will overcome our challenges together.”

Prosus, Peak XV and Chan Zuckerberg Initiative abruptly resigned from Byju’s board last year over its governance practices, and Deloitte dropped the startup’s account. Prosus said last year that Byju’s did not “evolve sufficiently for a company of that scale,” and the Indian firm “disregarded advice and recommendations” from its backers.

Byju’s is still reeling from the consequences of its aggressive expansion strategy during the pandemic. The startup, which had amassed a valuation of $22 billion by early March 2022, spent more than $2.5 billion to acquire nearly a dozen startups around the world in a span of just two years. The company had grand ambitions of going public at a valuation exceeding $40 billion, but its plans were disrupted by the dramatic reversal in market sentiment following Russia’s invasion of Ukraine.

Raveendran, for his part, has admitted that he made “mistakes” and is seeking another chance from his backers to correct course. “Even my critics know that I have invested my everything, and even more, into this company,” he wrote Friday. “So, I hope that you will see the value in continuing with Byju’s in the same spirit with which you first joined our journey.”

The story was updated with additional details.