Broker Network founder Rahul Yadav tried to deplete Info Edge's shareholding in the company by offering to bring in Rs 50 crore of fresh funds from a Dubai-based property dealer in March-April at a valuation that was 99 percent lower than its last funding round, Moneycontrol has learned from sources close to the company and its top-level employees.
This was after the Mumbai-based company had exhausted Rs 192 crore of investor money in the past 14 months, and majority shareholder Info Edge had asked for granular financial details of the company.
Broker Network last raised Rs 90 crore from Info Edge in September 2022, at a post-money valuation of approximately Rs 1,500 crore ($185 million).
Yadav is said to have made multiple offers to Info Edge via email in the past few months on behalf of a Dubai-based property dealer. However, these offers never reached the stage of a legal agreement, according to sources close to Broker Network.
Broker Network (4B Networks Private Limited), started in November 2020 by Housing.com founder Yadav, was created to enable real estate developers and brokers to communicate with each other and conduct their business through its platform. It also helped in loan origination for end consumers.
The first offer brought by Yadav in March was a Rs 2 crore valuation for the company and a primary capital infusion of Rs 4 crore, which would have made Info Edge a minority shareholder. Info Edge is believed to have declined to even consider this, according to people associated with Broker Network.
A few days later, Yadav and his investor offered a valuation of Rs 10 crore and a primary infusion of Rs 2 crore. Under any of these offers, Info Edge would have lost its rights as a majority shareholder.
Even as Info Edge refused to entertain the offer, Yadav came up with a "final offer" of a Rs 20 crore valuation and a Rs 50 crore primary infusion into the company. When Info Edge spoke with the investor on the phone and requested an in-person meeting, as well as KYC details, the investor disappeared soon after, Moneycontrol learned from sources within Broker Network.
The investor that Yadav brought in for this offer was a Dubai-based property dealer, who has business interests in India, the UK and the UAE. He is said to be an old associate and friend of Yadav. He also had a business relationship — as a creditor — with Broker Network for the past 18 months. Some employees mentioned that he was a friend of Yadav and had been seen with him over the past couple of years.
While there were discussions to remove Yadav from the company by late last year, he did not allow Info Edge to conduct due diligence, which probably prevented the investor from having a valid reason to oust him from the firm, according to sources close to Broker Network.
Info Edge declined to comment on the story. Moneycontrol has reached out to Rahul Yadav with queries on the matter and the story will be updated when a response is received.
Broker Network saw a net loss of Rs 58 crore in FY22 on revenues of Rs 18 crore, according to MCA filings of the company accessed by financial data platform Tofler.
Questionable deals
Yadav also employed a digital marketing agency to run campaigns for his firm and the billing came to about Rs 11 crore, quite a large sum for the campaign size, according to company sources. Even before paying that vendor, the company employed another digital marketing company for a new campaign soon after. This time, the company had no prior experience in digital marketing. These vendors, according to sources, also have outstanding bills.
"He has no respect for money, investors or employees. That trait of his has not changed since Housing days," said a senior executive associated with Yadav.
Info Edge has a history of conducting due diligence on individuals and investing in founders' companies only if they have good references. It is believed that the company passed on the opportunity to invest in BharatPe after receiving bad references about Ashneer Grover. However, it is believed that Yadav approached Info Edge claiming that he is a reformed person.
Yadav was never accused of any wrongdoing, but questions were raised about his short temper, immaturity, and reckless behaviour at the time of his ouster from Housing.
In the early days of Broker Network, which was billed to be his final chance at redeeming his legacy, Yadav’s approach seemed humble and requested a second chance, says a person close to him.
This would be Yadav's third venture, after his infamous stint at Housing.com, which led to his ouster, and Intelligence Interfaces, where reports state that there was no trace of what the company was doing just a few months after it raised funds from investors such as Paytm's Vijay Shekhar Sharma and Flipkart's Sachin and Binny Bansal.
In 2015, Yadav was ousted from Housing.com after the company's board said that his behaviour towards investors, the ecosystem, and the media was believed to be "unbefitting of a CEO and detrimental to the company."
The chain of events
Info Edge started infusing funds in Broker Network in February 2021 and made six infusions into the company. The first infusion was in February 2021 for Rs 9 crore. This was followed by infusions of Rs 7 crore in July 2021, Rs 15 crore in October 2021, Rs 18 crore in December 2021, and an additional Rs 90 crore in February 2022. This brought their total investment to Rs 137.12 crore, giving them a shareholding of 57.16 percent.
By the end of September 2022, Yadav is said to have depleted the company's coffers with profligate spending on marketing and employee salaries. At this time, he approached Info Edge for more money and was asked to collect all the billings.
In September 2022, Info Edge infused Rs 90 crore more into the company, taking its shareholding to 59.80 percent. At this time, Info Edge said in the filing that the additional investment was made to strengthen the offering in the real estate segment. This Rs 90 crore infusion was done at a post-money valuation of ~$185 million.
However, it is believed that this additional infusion too was exhausted by Yadav and 4B Networks.
In December, Yadav approached Info Edge with a foreign debt proposal, which was at 2 percent monthly interest in dollars, a proposal Info Edge is believed to have stonewalled as it feared Yadav did not have a business plan in place to pay back the money. Additionally, the company is believed to be concerned that stringent Foreign Exchange Management Act (FEMA) regulations could land the company in trouble.
For the quarter ending December 31, 2022, Info Edge informed its shareholders that it had written down its investment of Rs 276 crore in the company. Given the write-down just a few months after the additional investment, Info Edge’s Chief Financial Officer Chintan Thakkar told analysts at the time that they had hoped the investment “would work out”, but had decided to “write down the investment in the light of the current state of the environment and the significant uncertainty towards funding options available to 4B going forward.”
While the investment was written down, Info Edge is believed to have received complaints from employees and vendors about Broker Network over unpaid bills and salaries. At this juncture, Yadav approached Info Edge for a temporary reprieve and a few crores to pay employees and vendors. Info Edge gave Rs 12 crore as debt financing to the company to pay off dues.
Despite this, sources say there is no proof of any of the employees or vendors being paid.
On June 1, Info Edge said in a filing made to the stock exchanges that it had initiated a forensic audit into Broker Network, appointing Deloitte as the forensic auditor. If any discrepancies are discovered during the forensic audit, it could potentially help Info Edge in removing Yadav from his executive position.
Info Edge said in the filing that it had written down its investment due to liquidity issues and uncertainty towards funding options, along with “excessive cash burn”.
The company said that against the backdrop of these issues, it sought information on financial transactions, transactions with related parties and other aspects from 4B networks and its current management but it never provided the same despite being contractually obligated to do so. The filing added that 4B Networks also did not respond to information requests on several occasions.
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