Byju’s seeks to raise $1 billion to sidestep shareholder revolt

Byju’s is in advanced talks with prospective new shareholders for a $1 billion fundraising round, seeking to stave off attempts by some investors to clip founder Byju Raveendran’s control over the beleaguered tech startup.

The Indian firm is offering sweeteners, including preferential treatment in the case of liquidation, to win over new backers, people familiar with the matter said, asking not to be named as the information isn’t public. None of its existing shareholders have a so-called liquidation preference, the people said. Byju’s, which has been trying to raise fresh funds for months, seeks to close a round within two weeks, they said.

It’s unclear whether Raveendran will ultimately secure a capital influx, a critical step in a broader campaign to retain control of a startup once deemed India’s most valuable at $22 billion. Powerful shareholders and creditors began seeking to dilute his influence after the post-Covid online education market slowed and the startup missed deadlines for filing results and an interest payment on a $1.2 billion loan.

The representatives of three influential backers - Peak XV, Prosus NV and the Chan-Zuckerberg Initiative - quit the board in the same week Deloitte Haskins & Sells resigned as Byju’s auditor, underscoring a rapid erosion of trust within the company’s ranks.

Discontent investors

The company has been warding off demands from a few investors to strip Raveendran of some of his privileges given through a shareholders’ agreement, including a right of first refusal on investors seeking to sell their stake, the people said. The investors were mooting options, including merging some pieces of Byju’s into competitors in equity deals, according to the people.

Meanwhile, the founder has the backing of some of the startup’s existing shareholders, which, together with Raveendran, control a large voting bloc. The opposing shareholders were temporarily mollified after Raveendran and Chief Financial Officer Ajay Goel hosted a call over the weekend to assure investors that the fundraising is on track and that long-delayed financial accounts will be finalised soon, the people said.

However, prolonged delays in completing the promised equity raising could threaten the founder’s control over the firm, they said.

Byju’s and its lenders are fighting over the $1.2 billion term loan after the firm breached terms of its debt agreement.

Early this month, it elected to skip an interest payment on the loan and filed a lawsuit in New York alleging a group of investors manufactured a fake debt crisis to extort money from the firm.

Indian regulators are also scrutinising the company following a delay in submitting financial statements and the auditor resignation. Raveendran is planning to reconstitute the board only after the fundraising has been completed, as the new investors would likely take some of the vacant seats, the people said.

A spokesperson for Byju’s declined to comment on fundraising or any discontent among investors.

Byju’s has about $900 million in cash reserves and plans to use some of the potential fresh funds to pay down the disputed $1.2 billion term loan, one of the people said. The loan is being quoted at 63.8 cents on the dollar, Bloomberg-compiled data show. A level below 70 is generally considered distressed.