byjus funding: For more capital, Byju’s must pass a tough test

Top shareholders at Byju’s have demanded the company meet certain conditions before they consider any future capital infusion into the beleaguered edtech firm that is battling a deepening fund crunch, people in the know of the matter said.

These investors have asked the company to file its audited financials for the year ended March 31, 2023, at the earliest. In addition, they want founder Byju Raveendran to loosen his day-to-day control over operations at the firm, the sources added.

Meanwhile, furthering his role as a white knight to the Bengaluru company, Manipal Education and Medical Group chairman Ranjan Pai extended around Rs 250-270 crore in fresh funding to Byju’s a few weeks back, according to the people cited above.

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‘Company requires around $120-130 million’

In exchange, Raveendran has pledged a part of his personal stake in Byju’s subsidiary Aakash Institute, they told ET on condition of anonymity. The Byju’s founder owns about 27% stake in Aakash.

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The latest funding by Pai is separate from his investment of Rs 1,400 crore in Aakash on November 10 that was used to clear Byju’s debt to US lender Davidson Kempner.

Byju’s had promised shareholders it would file the delayed FY23 results by December 2023 but is unlikely to meet this deadline.

“For anything to move from existing investors, audited FY23 financials would be required,” said one person aware of the specifics, noting that “the audited FY22 data is 18 months old, what matters is where the business is now and that will come through the FY23 numbers, even as it (Byju’s) is looking to sell assets for other reasons.”

Sources briefed on the matter estimated that Byju’s needs around $120-130 million in fresh financing in the next couple of months to run operations even with additional cost-cutting that is planned. The company, so far, has only released a part of its FY22 results to the media after a delay of more than a year. It filed its FY21 numbers after an 18-month delay in September last year.

“Given what’s happening at the firm, Byju’s India and Aakash are the key assets left. India business is being run by new CEO Arjun Mohan and he may get an additional role in the company’s remaining overseas assets if the Epic and Great Learning sale goes through,” another person aware of the ongoing discussions said.

Responding to ET’s queries on the developments, a spokesperson for Byju’s said: “We have constructive engagement with the existing shareholders on all crucial matters. We are also in discussions with multiple sources of capital for fresh fundraising, which is currently underway.”

The appointment of CEO Mohan and CFO Nitin Golani, among others, has “significantly strengthened the management over the last few months”, the company stated. Golani replaced Ajay Goel while Mohan took over from Mrinal Mohit.

Pai, who was an early investor in Byju’s through his venture fund Aarin Capital, had exited the investment. This time, however, he has been closely working with Byju’s and the board advisory council on matters such as resolving the tussle over the Davidson Kempner debt.

He did not reply to ET’s queries on the developments.

Meanwhile, the Board of Control for Cricket in India (BCCI) has filed a case against Byju’s at the National Company Law Tribunal over a sponsorship payment dispute. The filing was made last month. “We are in discussions with BCCI to settle the matter and we hope to achieve that soon,” a spokesperson for Byju’s said. Online publication The Morning Context first reported this Tuesday evening.

Ongoing turmoil
Byju’s founder group, which consists of Raveendran, wife Divya Gokulnath, brother Riju Ravindran, together with its top management and employees, holds about 25-27% stake in Think & Learn – the parent of Byju’s. Sources said Raveendran has also ensured rights for himself in shareholding agreements which protects his position in the company as well as the board.

ET first reported on June 22 that GV Ravishankar, managing director at Peak XV Partners (formerly Sequoia Capital India), Russell Dreisenstock of Prosus (previously Naspers) and Chan Zuckerberg Initiative’s Vivian Wu had stepped down from the board. These resignations were confirmed a day later leaving only the Raveendran family on the board.

“Investors also won’t put money in a company completely run by a board with promoters only,” one of the sources mentioned above said. Rajnish Kumar, former SBI chairman, and ex-Infosys CFO Mohandas Pai have joined the edtech’s board advisory council following the big resignations at the board.

Constant changes
Meanwhile, the company has closed the due diligence process for the sale of subsidiary Epic and has shared findings with three suitors, including Joffre. It is hoping to generate around $400 million from the sale. Separately, talks related to sale of Great Learning — another group asset — is being held directly through the company’s Term Loan B creditors and founder Mohan Lakhamraju.

“The company is hopeful that the Epic sale should close before the year end,” a source added.

Another key reason Byju’s is considering all instruments for fresh funding at the company is that the sale proceeds from Epic and Great Learning would go to the creditors who lent the company $1.2 billion in November 2021.

On November 4, Byju’s had partially released its audited FY22 financials showing a 2.3 times growth in revenue to Rs 3,569 crore in its standalone business.

Ebitda loss for the core business — financials for which were reported — was down to Rs 2,253 crore in FY22, from Rs 2,406 crore in the previous year, according to a company statement. Ebitda is earnings before interest, taxes, depreciation and amortisation.

These financials, released earlier this month, do not include earnings for Aakash Institute and other acquisitions made by Byju’s. The revenue was still much lower than earlier projected by the Bengaluru-based firm on an unaudited basis.

Last year, while announcing its FY21 audited results, Byju’s said in a press statement that for financial year 2022, it has clocked Rs 10,000 crore in gross revenue on a consolidated basis including all subsidiaries. To be sure, these were unaudited consolidated results.

On November 27, Byju’s said its chief technology officer Anil Goel had been replaced by Jiny Thattil. Sources said Goel was not only one of the highest paid executives in Byju’s, but he was among the top paid CTOs in the country.

“They (Byju’s) are trying to cut costs and save capital. The company has a single focus now: Cut costs as much as possible because it has limited reserves,” another source added.