BYJU’S $200 Mn Rights Issue Fully Subscribed Ahead Of EGM

Beleaguered edtech startup BYJU’S rights issue to raise $200 Mn at a valuation cut of 99% has been fully subscribed ahead of its crucial extraordinary general meeting (EGM) on Friday.

The company’s founder and CEO Byju Raveendran has confirmed the development in a shareholder letter.

Raveendran will reportedly put $45-$46 Mn in the rights issue to preserve his shareholding in the company, which may also see some late-stage investors coming in.

BYJU’S investors have called for EGM demanding to change the company’s leadership and change in its board.

Currently, BYJU’S board comprises Byju Raveendran and his family members Divya Gokulnath and Riju Raveendran. Last year, three of its board members – Russell Dreisenstock of Prosus, Chan Zuckerberg Initiative’s Vivian Wu, and Peak XV Partners’ GV Ravishankar resigned. 

In a letter assessed by Inc42, Raveendran mentioned that the $200 Mn raise would provide the company with the necessary capital to address current liabilities and ensure ample growth capital to restore it to its previous stature.

“I understand that participating in this rights issue may seem like a Hobson’s choice. However, this is the only viable option in front of us today to prevent permanent value erosion,” the letter said.

It further read that the board has selected a price designed to be appealing to all shareholders without causing financial strain. The objective is to encourage participation from all shareholders and a rights issue was chosen as the fairest means of raising capital without assigning a specific valuation. 

Raveendran added that the ownership of the company remains unchanged before and after a rights issue, making the question of valuation irrelevant as value preservation is upheld, following a well-established practice in corporate capital raises.

Further, he expressed his ongoing commitment to shareholders, stating that to enhance shareholder representation, he aims to restructure the board and add two non-executive directors with the agreement of both the founder and shareholders, immediately following the FY23 Audit, expected to conclude by the end of this quarter. 

“I believe this action will benefit the company and foster greater shareholder engagement,” he said in the letter.

“To ensure transparency about the usage of funds raised through the rights issue, we will appoint a third-party agency to monitor the same. This agency will report to all shareholders every quarter, within 45 days from the end of the quarter, along with commentary from the board.”

Earlier this month, BYJU’S said to have kicked off a $200 Mn rights issue. The edtech giant is seeking to raise the fresh capital at a post-money valuation of $225 Mn, a whopping 99% decline from its last valuation of $22 Bn, sources told Inc42.

It is pertinent to note that after the resignation of its representative from the board of BYJU’S last year, Prosus said that the reporting and governance structures did not evolve sufficiently for a company of that scale.

The beleaguered company has been fighting on multiple fronts over the last year or so. It continues to be plagued by a host of troubles, including the exit of board members, layoffs, delay in filing financial statements, growing losses, scrutiny of the Enforcement Directorate (ED), and a legal battle with the Board of Control For Cricket in India (BCCI).

BYJU’S filed its financial statements for FY22 almost 22 months after the end of the year. Its consolidated net loss surged 81% to INR 8,245.2 Cr in FY22 from INR 4,564.3 Cr in FY21. Operating revenue rose over 120% year-on-year to INR 5,014.6 Cr during the year under review, mostly on the back of improvement in the financial performance of Aakash. 

In the financial statement, the startup’s auditor also flagged concerns regarding its continuing net losses from operations and accumulated losses and the outcome of the litigation of the $1.2 Bn Term Loan B availed by Byju’s Alpha Inc.