Rights issue caps Byju's wild ride from top startup to throwaway valuation

People walk past an advertising hoarding of Byju's in New Delhi (REUTERS)
People walk past an advertising hoarding of Byju's in New Delhi (REUTERS)

Summary

  • Investors have 30 days to decide if they want to participate. The steep discount means those who do not participate will face massive erosion of their shareholding.

Online tutor Byju’s has agreed to a post-money valuation of $225 million as it approaches existing investors for $200 million to stay afloat, two people aware of the matter said, a stunning decline from the $22 billion it commanded as the country’s most valued startup just two years ago.

Think & Learn Pvt. Ltd, the parent of Byju’s, said it is looking to raise the amount in a rights issue, which is open only to existing investors. Investors have 30 days to decide if they want to participate. The steep discount means those who do not participate will face massive erosion of their shareholding, the people cited above said, given that shares are being offered at 0.1% of its peak valuation in its last funding round.

“The funds raised will be exclusively utilized to clear immediate liabilities and meet operational requirements, while maintaining the current rights of our shareholders," founder Byju Raveendran said in a media statement.

The move helps the company raise money immediately at a nominal value, not considering the fair value calculated based on its subsidiaries, associate companies and other assets. This means that it has not taken into account the valuation of any of its acquisitions including Aakash Education Services, Great Learning and Epic. It also doesn’t take into account its largest liability - a $1.2 billion overseas loan.

Byju’s, which achieved peak valuation in late 2021 following the pandemic-fuelled boom in remote learning, has since seen a plunge in fortunes, as the economy opened up and students returned to schools. The rights issue at the steep discount comes as a desperate move to raise capital while it faces mounting liabilities from vendors and employees.

An early fundraise will help the company tide over immediate capital requirements and mounting liabilities from vendors and former employees. Byju’s has around $100-125 million of outstanding liabilities, one of the two people cited above said, adding, “The company will use the remaining to pump into the company for growth purpose."

“One of the reasons we are considering a rights issue is that it allows every shareholder an equal opportunity to participate and maintain their respective shareholding in the company. We are aware that there has been media speculation on the current valuation of the company. … It is an equal opportunity to all shareholders to participate and maintain shareholding without the need to ascribe valuations. We shall take a decision in the larger interest of the company," Raveendran said in a letter to his shareholders. Raveendran will have to bring in around $43 million to maintain his 24% shareholding.

“The board believes it is imperative that the company raises capital in order to create a glidepath to deliver strong shareholder value. This capital raise is essential to prevent any further value impairment and to equip the company with necessary resources to deliver on its mission."

“They are doing a rights issue at “next to nothing" to ensure maximum participation," said a second person familiar with the matter. “This will allow early stage, mid-stage and late-stage investors equal access. Those who do not participate stand to get disproportionately diluted," he added. The company will attempt to raise external funding if the rights issue fails, the person added.

The founders of the company said in their shareholder letter that they have personally pumped in $1.1 billion in the last 18 months. “As the largest shareholders, the founders of Byju’s have already demonstrated their commitment to the company by personally investing more than $1.1 billion in the last 18 months," the letter said.

Byju’s media statement said it is now less than a quarter away from achieving operational profitability, reflecting the effectiveness of the recent strategic initiatives undertaken by the company and the resilience of its business model.

“If investors do not invest, they get diluted. Each shareholder has to decide for themselves," an investor said, asking to remain anonymous.

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