Byju’s investors vote to oust Byju Raveendran: What happens next?

Byju's has been locked in several legal fights and has suffered massive losses.

Byju’s had everything going for it.

The biggest investors in the world wanted a pie of the feted edtech firm. Lakhs of students signed up to study on its platform. High-profile celebrities endorsed it. The brand adorned Indian cricket team jerseys. Its top management shared the stage with powerful politicians.

Most importantly, for almost every year between 2016 and 2022, Byju’s saw its valuation double.

But, its fortunes began to turn as the macroeconomic conditions changed in the last couple of years. On one hand, the clamour against FOMO-driven sales practices of edtech platforms got stronger. Meanwhile, as students started going back to physical classrooms after the Covid era, their parents cut back spending on educational apps. And, its multiple acquisitions for billions of dollars underperformed.

As the juggernaut of Byju’s fundraising came to a grinding halt, its blue-chip backers of yesteryears and the company’s leadership found themselves at swords’ ends.

Last week, key shareholders held an extraordinary general meeting and declared that they had voted to overhaul the company’s leadership and governance. But, the founder — Byju Raveendran — is not ready to cede an inch.

Here’s all that you need to know about the power struggle at Byju’s:

Why do investors want Byju Raveendran out?

A group of investors alleged that the company’s management failed to make disclosures to shareholders about Byju’s financial position, departure of top executives, proceedings by regulatory authorities, payment delays to stakeholders like employees and vendors, misled certain shareholders as to when the FY22 and FY23 audit would be completed, and did not invite the board observers to the board meetings where the FY22 financials were approved, among a laundry list of lapses.

What happened at the extraordinary general meeting last week?

After the EGM began late due to disruptive tactics of unknown people such as phishing and heckling, the investors passed multiple resolutions to reconstitute the company’s Board, start a forensic probe of alleged wrongdoings at the company, and change the edtech firm’s leadership.

While investor sources claimed that shareholders owning 60 percent of the company voted in support of the resolutions, company sources said that it was only about 47 percent. Further, the company said that the vote was illegal as the company’s bylaws mandate that at least one founder has to be present in an EGM, whereas the founder's family skipped the meeting entirely.

What happens next?

A day before the EGM, Byju's obtained an order from the Karnataka High Court that the resolutions passed in the meeting wouldn’t be put into effect until the next date of hearing in March in a case filed against the EGM. Investor sources said that they would present their case to the courts again to argue that calling the EGM was within the bounds of law.

Meanwhile, Byju’s is expected to close its rights issue to raise $200 million at a 99 percent valuation cut from existing shareholders in the next few days. In case, key investors like Prosus, Peak XV, General Atlantic, and others — who have mounted the campaign to oust the current leadership don’t participate in the issue — their shareholding in the company will get diluted to very low levels.

Will the rights issue go through?

Byju’s has said repeatedly that the rights issue has been oversubscribed by existing shareholders. Industry experts say that if the key investors don’t participate, then the founder family which already owns around 25 percent of the company can plough in money to expand their control. However, it must be noted that one of the resolutions passed in the EGM was also to block the founders from undertaking any transfer of shares or rights in the company and its subsidiaries and associates.

What about the NCLT case filed by investors?

As the EGM was underway last week, it emerged that the investors had filed an oppression & mismanagement suit against the management of the company in the Bengaluru Bench of NCLT to declare founders as unfit to run the company, appoint a new board, declare the rights issue as void, conduct a forensic audit, among other reliefs. The petition has been signed by four investors - Prosus, GA, Sofina, and Peak XV along with support from other shareholders including Tiger, and Owl Ventures.