The board of Think and Learn Pvt Ltd, the parent company of Byju's, has approved a rights issue to raise $200 million from existing investors, starting on January 29 and remaining valid for the next 30 days, according to sources.
The issue will happen at a post-money valuation of $225 million, which is 99 percent lower than the company's last funding round which happened at a valuation of $22 billion, the sources said. This would also mean Byju's pre-money valuation now would be $25 million, which is 99.9 percent lower than the previous funding round.
According to people familiar with the developments, the company expects most existing investors, including founder Byju Raveendran, to participate in the round. The subscription price has been kept at minimum so that all existing investors can participate and benefit.
To be sure, rights issues are typically valued much lower than the fair market valuation of a company to attract existing investors to double down on their bet. An investor Moneycontrol spoke with called the issue 'brave' and that it is a smart strategy when the company has been dragged to court under insolvency rules.
This comes at a time when the edtech company is battling with a severe cash crunch. Even as founder and CEO Byju Raveendran has reportedly mortgaged his houses to pay salaries to thousands of employees, lenders and vendors have dragged the embattled edtech company to court under insolvency rules, in a bid to force payment of dues.
In a letter sent to the shareholders on January 29, Raveendran 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.
At present, the company's board consists of Raveendran himself, his co-founder and wife Divya Gokulnath, and his brother Riju Ravindran, following the departure of other members last year.
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.
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