An India government investigation found lapses in the corporate governance of Byju’s, but cleared the struggling online-education startup of financial fraud.
The yearlong probe by the Ministry of Corporate Affairs found no evidence of wrongdoing such as siphoning of funds or manipulation of financial accounts, people familiar with the matter said.
Still, it discovered governance shortcomings that contributed to the startup’s mounting losses, the people said, asking not to be named as the investigators’ report isn’t public yet.
The findings offer some support for once-celebrated founder Byju Raveendran, who’s been accused of mismanagement by disgruntled investors. Three shareholders including Prosus Ventures and Peak XV Partners, formerly Sequoia Capital India, left the board of Byju’s last year over differences with Raveendran on issues such as business processes and internal controls. The report also ends, at least temporarily, the possibility of any new scrutiny on the company by Indian officials on issues already probed.
Representatives of the corporate affairs ministry, Byju’s, Peak XV and Prosus didn’t respond to requests for comment.
The report doesn’t directly address whether Raveendran personally is at fault for the governance lapses or whether he is qualified to run the company. The disgruntled investors have sought his removal, citing management and compliance failures.
The report also does little to stave off the company’s broader problems. The unprofitable startup’s quick expansion led to a cash crunch and a plunge in its valuation, and it’s now fighting multiple lawsuits in India and the US.
The probe found that weak corporate governance and compliance practices, along with a change in the funding environment, contributed to its ballooning losses, the people said. Investigators also concluded that that startup failed to bring in professionals to oversee finances and compliance, which led to the losses, the people said.
The report establishes that Byju’s didn’t disclose full details of acquisitions with all directors and that meetings to approve such deals were called at short notice. But it acknowledges the founders’ rationale that some directors were also investors at rival companies, according to the people.
The ed-tech company was valued at $22 billion at its peak. Business surged during the two years of the Covid-19 pandemic but as infections subsided and classrooms resumed, its cash pile shrinked. It’s now battling several bankruptcy cases in India and overseas. Though Byju’s has managed to raise more than $100 million from existing investors through a fresh issuance of shares, an Indian court has barred it from using that money.
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