Early backers in talks to sell stakes in Byju's

A few have farmed out ‘soft’ mandates to investment banks to look for buyers, they said, requesting anonymity.

“These investors have been around for a long time and would be now looking to cash out. The talks are in initial stages, and final valuation is yet to be decided," said one of the four people, who added that a deal could be struck at a 25-30% discount to the company’s last funding valuation.

A company executive, who did not want to be named, disputed that some investors were looking to exit, saying that no investor was seeking to exit the edtech company. Spokespersons for Lightspeed and Chan Zuckerberg also denied they are selling shares.

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To be clear, founder Byju Raveendran has the right of first refusal option in share purchase agreements with Think & Learn Investors. This clause gives Raveendran the right to purchase investor shares before any other buyer. This means that even if selling investors found buyers for their stakes at a particular valuation, founder Raveendran would hold the right to match the price or buy those shares at a higher price.

This would allow Byju’s to ensure its company valuation does not drop below a certain threshold. Raveendran, who holds around 25% in the company, along with his family, intends to raise his stake to 40%, Bloomberg reported last week. According to that report, Raveendran is in talks with financiers and investors to raise money against company shares to buy back existing investors.

The company board would need to approve any secondary share transfer.

The company’s last valuation was $22 billion. A secondary transaction—where shareholders sell shares to existing or new shareholders—is typically at a discount to the valuation at which a company raises primary capital through the issuance of fresh shares.

Some of Byju’s backers include Sequoia Capital, General Atlantic, Lightspeed Venture Partners, Qatar Investment Authority, Owl Ventures, General Atlantic, CPPIB, Tiger Global, Tencent, Verlinvest and Sofina.

According to Tracxn data, Chan Zuckerberg Initiative and Lightspeed hold 2.4% each in Byju’s as of 1 July.

In an interview in September, Raveendran said he would be willing to buy these investors out. “I am the biggest backer of my own company. I will buy out these investors even if they sell it (their stake) at $15 billion," he said after the company announced its FY21 earnings.

These talks come at a time when the edtech decacorn is tapping private equity firm TPG Capital to put primary capital into the company. TPG hired a consulting firm to conduct due diligence on Byju’s but has not yet put in a bid.

“The TPG-led round is going to be a convertible one," said the second person with knowledge of the company’s plans. A convertible round allows a firm to put money into a company, which will convert into equity only in the next round, which eventually provides the incoming investor with a discounted price.

The second person cited above told Mint that with the overall market correcting, the primary valuations have taken a hit, and it will also reflect in the secondary share sale, too. “It is likely to be as low as $14 billion. Remember, these people would still make healthy returns. Everyone wants to take some money off the table, and it is likely that others also want to part-sell," the person added.

In September 2016, Byju’s raised $50 million from the Chan Zuckerberg Initiative and existing investors Sequoia Capital, Belgian investment firm Sofina SA, Lightspeed Venture Partners and Times Internet Ltd.

Chan Zuckerberg Initiative is a personal fund set up by Facebook Inc. founder Mark Zuckerberg and his wife, Priscilla Chan.

Emailed queries sent to spokespeople for Lightspeed, Byju’s and Chan Zuckerberg Initiative did not elicit any response. But the senior Byju’s official cited above denied any investors were looking to sell. The person declined to be named.

Last year, founder Raveendran invested $400 million of primary capital for fresh shares that were issued to him after raising capital in his personal capacity from global investors.

Byju’s, founded in 2011, has been acquiring education companies in India and the US as part of its “string of pearls" expansion strategy. In 2021, the company’s losses widened to ₹4,589 crore from ₹232 crore in the previous fiscal. Its results for 2022 have not been filed with the registrar of companies.

In a recent note to staff, Raveendran said the firm would double down on setting up more physical tuition centres even as it is “working very hard" to achieve profitability at the group level by next year.

Update: Subsequent to the publication of this article, representatives of Lightspeed Ventures and Chan Zuckerberg Initiative have denied that they are selling shares.

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