byju’s markdown peak xv: Plan significant Byju’s markdown over lack of visibility on audited financials: Peak XV tells limited partners

Signalling the widening chasm between Byju’s and its key shareholders, investment firms Peak XV Partners and Prosus said they resigned from the edtech major’s board in June due to a lack of internal controls at the company.

Peak XV (formerly Sequoia Capital India) wrote to its limited partners (LPs are sponsors in investment funds) last week, that it would mark down the value of its holding. “The marking down of our investments reflects our lack of visibility into Byju’s up-to-date audited financials and our inability to influence (it) to take corrective measures,” the investor wrote in the letter, which ET has seen.

Peak XV said it will be “significantly writing down our investment in the company in the coming reporting cycle,” but did not provide further details on the expected reduction.

“This is a developing situation, and we, alongside the other investors, continue to evaluate all available options,” said Peak XV.

This is the first time investors have externally flagged financial and corporate governance irregularities at Byju’s, which has delayed filing of its FY22 audited results, is facing inquiries by the Directorate of Enforcement and the ministry of corporate affairs, and has had a protracted face-off with lenders over a $1.2-billion term loan.

Prosus had previously marked down the value of its stake in Byju’s.

On June 27, citing Prosus’ annual report, ET reported that the fair value of the global investment group’s stake of less than 10% in Byju’s had been marked down to $493 million as of March 2023, from $578 million. This translated to an enterprise valuation of about $5.1 billion for Byju’s — way below the $22 billion ascribed to it during its last equity funding.

Early backer GV Ravishankar, who is a managing director at Peak XV Partners, Russell Dreisenstock of Prosus (previously Naspers) and Chan Zuckerberg Initiative’s Vivian Wu had stepped down from the board last month.

While Prosus holds nearly 9.6% in Byju’s, Peak XV’s shareholding is at 7% after two rounds of secondary share sale by the venture capital fund over the past few years, according to data fetched from Tracxn.

Peak XV told LPs that Ravishankar’s resignation from Byju’s board on June 6 was due to the fund’s dissatisfaction with the company’s management on issues including internal processes, governance and audit.

“For several quarters, we and other investors have made continued efforts and sent numerous notices to the company’s management in an effort to obtain more accurate information, and to push the company to improve transparency, internal controls and governance processes. However, with very limited shareholder rights in the company and the founder having the ability to retain control of the board of directors, we have been unable to drive changes that we believe were necessary…” the letter said.

The Peak XV LP letter (sent a few days ago) and Prosus’ statement on Tuesday come on the back of Byju’s and its lenders saying they would reach an agreement on changes to conditions in the company’s $1.2-billion term loan B. This is expected to speed up disbursal of the loan and end litigation between the two sides.

‘Still believe in Byju’s potential’

Prosus, which has backed Indian internet startups such as Swiggy, Meesho and PharmEasy, said its decision to step down from the board was made “after it became clear that he (Dreisenstock) was unable to fulfil his fiduciary duty to serve the long-term interests of the company and its stakeholders.”

The South African-Dutch group added that even though it no longer has a representative on Byju’s board, it will continue to believe in the potential of the edtech company and its role in revolutionising access to quality education.

“As a shareholder, Prosus will continue to assert its rights, collaborating with other shareholders and government authorities to safeguard the long-term interests of the company and its stakeholders,” it said in a statement on Tuesday.

In response to the Prosus statement, a spokesperson for Byju’s said, “We have noted the observations of our valued investors. We have updated our shareholders about definitive steps taken to improve corporate governance and financial reporting.”

Peak XV did not respond to ET’s query on its letter to LPs.

On June 22, Deloitte resigned as Byju’s official auditor, citing delays in receiving the company’s financial statements for FY22, while the investor-appointed board members confirmed their exit on June 23. After Deloitte’s exit, the company appointed BDO (MSKA & Associates) as its statutory auditor for five years, beginning FY22.

Cofounder Byju Raveendran and chief financial officer Ajay Goel promised investors on June 24 that the company’s audited FY22 financials would be filed by September, while those for FY23 would be released by December this year.

Byju’s reported its FY21 financials on September 14 last year, after an 18-month delay, showing a loss of Rs 4,588 crore on revenue of Rs 2,280 crore.