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The court halts Byju’s second rights issue as its $200 million fundraising falters

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Byju's logo displayed on a smartphone laying on a table covered in school supplies

Byju’s is struggling to raise the full $200 million from its rights issues that its founder previously claimed was oversubscribed, sources familiar with the matter told JS. And now India’s National Company Law Tribunal has stopped the company from going ahead with its second rights issue, amid allegations of shareholder oppression and mismanagement.

The Tribunal on Thursday also ordered the company to maintain the status quo regarding its existing shareholding until a petition filed by two of its investors, General Atlantic and Sofina, was resolved.

Byju’s had launched its first rights issue in late January, but a court order directed the company not to use the money it raised through that rights issue after many of its investors opposed the fundraising. The Bengaluru-headquartered startup had launched the fundraising after struggling to raise money amid allegations of corporate governance lapses, and that rights issue has virtually reduced its valuation to around $25 million, which is a stunning drop from compared to the startup’s $22 billion price tag. enjoyed.

The startup recently tried to raise money again through a new rights issue as it scrambled to pay employees and continue operations, but that effort has now stalled. Rights issues allow companies to raise capital by giving shareholders the opportunity to purchase additional shares at a discount, relative to their current holdings.

Thursday’s court order is the latest episode in the spectacular collapse of Byju’s, once the world’s most valuable edtech startup. It is backed by some of the world’s most influential investors, including BlackRock, Prosus, Peak XV, UBS, Bond, Sands Capital, Verlinvest, Tencent, Canada Pension Plan, Tiger Global and the World Bank’s IFC.

Byju’s fortunes started to fade some time ago – along with the post-pandemic tailwinds that took the company to its peak – but things started to go seriously downhill last year, when Prosus, Peak XV and Chan Zuckerberg Initiative resigned from the board of the company’s management, citing problems with the company’s operations. governance practices, and Deloitte dropped the startup’s account. Prosus had said Byju’s “had not evolved sufficiently for a company of that size”, and that the Indian company “ignored advice and recommendations from its supporters”. The investors have been trying to remove the company’s founder and CEO Byju Raveendran from the company.

Some investors, including Prosus and Peak XV, also accused Byju’s of violating an earlier court order and allotting shares to some shareholders despite their ongoing case. Byju’s has been instructed to provide details of the allocation and keep all the money raised in a separate escrow account.

JS was unable to determine exactly how much Byju ultimately raised in the first rights offering. A spokesperson for Byju did not respond to a request for comment.

“Our rights issue has been fully subscribed and my gratitude to my shareholders remains great,” Raveendran wrote in a letter to shareholders in February. In the letter, he urged his alienated investors to give him another chance and participate in the rights issue.

“But my measure of success is the participation of all shareholders in the rights issue. We built this company together and I want us all to participate in this renewed mission. Your initial investment has laid the foundation for our journey and this rights offering will help preserve and build greater value for all shareholders.”

The court order comes after BlackRock wrote down its investment in Byju’s, giving the Indian company an implied valuation of zero.