Byju's investors issue EGM notice for founders' ouster, say 'deeply concerned' about stability of company

Byju's

Days after Byju's launched a rights issue to raise $200 million from existing shareholders, the embattled edtech startup's investors are seeking to oust the top brass of the company led by Byju Raveendran, saying they are 'deeply concerned' about future stability under the current leadership.

The investors are seeking an extraordinary general meeting (EGM) to adopt resolutions on outstanding governance, financial mismanagement and compliance issues; the reconstitution of the Board of Directors, so that it is no longer controlled by the founders of Byju's parent company Think & Learn; and a change in leadership of the company.

At present, the company's board consists of founder and CEO Byju Raveendran himself, his co-founder and wife Divya Gokulnath, and his brother Riju Ravindran, following the departure of other members last year.

Sources said the statement is on behalf of Prosus, Peak XV, Sofina, Lightspeed and General Atlantic.

This is the third time they are issuing an EGM notice. They don't have the rights to enforce an EGM," said a person close to the developments.

The same person added that six of around 80 investors on the company's cap table have indicated that they would participate in the rights issue.

Here's the full statement issued on behalf of a number of major investors:

“As investors with a track-record in supporting the Indian start-up sector over many years, we are strongly committed to serving the long-term interests of the companies in which we invest and their stakeholders.

With this in mind, pursuant to the rights granted to shareholders under the Companies Act, 2013, a notice has [today] been issued to Think & Learn Private Limited (T&L) shareholders requesting an extraordinary general meeting (EGM) to address persistent issues. The request for an EGM is supported by a consortium of T&L shareholders and follows earlier notices of requisition sent to the T&L Board of Directors in July and December 2023, which were disregarded.

The resolutions being put forward for the EGM to consider include a request for the resolution of the outstanding governance, financial mismanagement and compliance issues; the reconstitution of the Board of Directors, so that it is no longer controlled by the founders of T&L; and a change in leadership of the Company.

The issuance of this EGM notice follows many months of continued efforts by shareholders to engage with the Company to address persistent issues relating to corporate governance, mismanagement and compliance. These efforts have been ongoing following the resignation from the Board in June 2023 of directors nominated by Prosus and other shareholders.

While we are grateful for the efforts of the independent advisory council in addressing some of the looming challenges facing T&L, we are deeply concerned about the future stability of the Company under its current leadership and with the current constitution of the Board.

We believe wholeheartedly in India and in the transformative role that education technology can play in improving teaching and learning. We also continue to believe in the role and contribution of BYJU’s. As shareholders, we will continue to assert our rights, in collaboration with other shareholders and government authorities to safeguard the long-term interests of the Company and its stakeholders.

In a letter sent to the shareholders on January 29, Raveendran had informed them about the board's decision to raise capital through the rights issue mechanism.

According to a source close to the developments, Byju's has reduced the monthly burn rate of its core business to Rs 50 crore and aims to achieve operational break-even in the next 2-3 months. Additionally, the company plans to reconstitute the Board after completing the FY23 audit.

In the letter to shareholders, the founder went on to draw parallels between the battles the company is going through to the struggles depicted in the verses of 'Invictus' by William Ernest Henley: "In the fell clutch of circumstance I have not winced nor cried aloud. Under the bludgeonings of chance, My head is bloody, but unbowed."

"We believe an expeditious capital raise will provide the company with the resources it needs to rebuild and scale. This shall be used for the continuation of business operations, to manage obligations and to make the company more sustainable," Raveendran said in the letter.

Earlier in an interview with Moneycontrol, Byju’s India chief financial officer Nitin Golani said that the company plans to offer a lucrative valuation to some of the existing investors.

This comes amid a series of valuation downgrades by Byju’s investors over the past year. In November 2023, tech investor Prosus marked down the value of its stake in Byju's, resulting in a company valuation of less than $3 billion, representing an 86 percent decline from the previous valuation of $22 billion.

More recently, global investment management firm BlackRock, which holds less than 1 percent stake in Byju’s, cut down the edtech company's valuation to $1 billion from the high of $22 billion it fetched in early 2022.

Raveendran added that the company’s board believes it is imperative that the company raises capital in order to deliver strong shareholder value.

“This capital raise is essential to prevent any further value impairment and to equip the company with necessary resources to deliver on its mission,” he added.

To be sure, the company had been trying to raise a round of funding for over a year. The fundraising attempts come at a time when the edtech giant faces an acute liquidity crisis with its auditors raising concerns over its ability to continue as a going concern for the next 12 months.

“It has been 21 months since our last external capital raise, during which we have cut our burn and worked to become a lean organisation, razor-focused on execution,” Raveendran said.

In the letter, Raveendran also revealed that the founders have infused over $1.1 billion of their personal funds into the company over the past 18 months

“We have made immense personal sacrifices for the sake of the company. We have spent our lives building this company and are fervent believers in its mission. Our enthusiasm and zeal continue unabated,” Raveendran said.

Last week, the company posted its FY22 financials reporting a consolidated revenue jump of 118 percent from Rs 2,428 crore in FY21 to Rs 5,298 crore in FY22. Its losses also ballooned from Rs 4,564 crore in FY21 to Rs 8,245 crore in FY22.

Byju's filed its FY22 financials with the Ministry of Corporate Affairs (MCA), almost 22 months after the reporting period ended. Meanwhile, the audit of its FY23 financials is yet to be completed even as FY24 is ending.

Byju's, which was once India's most-valued startup, has been under fire since the start of 2022 for a range of issues, including accounting irregularities, alleged mis-selling of courses, and mass layoffs.

“The past few months have been tough on our company as it faces challenges few companies ever have… In these uncertain times, we have not shied away from taking several tough decisions in the best interest of the Company, and we will continue to do so in the coming months,” Raveendran added in the letter.

The company has laid off thousands of employees in the last 12 months as it battled a double blow of drying venture capital funding and slowing demand for online learning services. Since then, its investor board members have left too, citing differences with Raveendran.

The company has tried to fix some of the problems since then. Its early investor Ranjan Pai ploughed in the capital, it set up an advisory council with veterans such as Mohandas Pai and Rajnish Kumar and elevated Arjun Mohan as CEO. It is also in talks to divest assets such as Great Learning and Epic.