Byju’s cuts valuation by over 99% in latest rights issue

Byju’s, the prominent Bengaluru-based edtech giant, is reportedly open to accepting a valuation as low as $220 Million post-money, as it endeavours to raise $100 million to $200 million through a rights issue on Monday. The fact that the India’s startup ecosystem poster child is accepting a valuation that is nearly 1% of its $22Bn peak, speaks volumes of the financial future and uncertainty it faces. The company said this working capital focused fundraise is “essential to prevent any further value impairment.” Byju Raveendran, the CEO and co-founder, is expected to contribute to the new funding.

In a letter Monday to the board, founder/CEO Byju Raveendran wrote, that he and other founders of the edtech group have invested $1.1 billion into the Bengaluru-headquartered startup in the last 18 months. They are now seeking continued support from existing investors to keep the business afloat. “We have made immense personal sacrifices for the sake of the company. We have spent our lives building this company and are fervent believers in its mission,”, said the letter reported by several media outlets.

The once-hailed edtech upstart, which is famous for its global acquisitions exceeding $2.5 billion in 2021 and 2022, has faced several challenges that have led to a reevaluation of its financial status. Attempts to raise approximately $1 billion last year were hindered by the departure of Deloitte as the auditor and three key members of the board. Byju’s was eventually able to secure less than $150 million from Davidson Kempner in that funding round. It is facing several other challenges that have impeded its growth, including raising capital, fulfilling payroll obligations, managing a debt of over $1 billion, and legal issues due to alleged mishandling of funds received from lenders. These challenges are significant obstacles for Byju’s in achieving its long-term objectives.

Byju’s initial plans for an early 2022 public offering through a SPAC deal valued at up to $40 billion were derailed by global geopolitical and macroeconomic uncertainties, compounded by internal issues, including corporate governance concerns. The company is backed by prominent investors such as Peak XV Partners, Lightspeed, General Atlantic, Prosus NV, UBS, and the Chan Zuckerberg Initiative. The company recently disclosed a dismal financial performance for the fiscal year ending March 2022, with net losses soaring to ₹8,245 crore from ₹4,564 crore in the previous year.

Nitin Golani, Byju’s India Chief Financial Officer, attributed 45% of the losses to underperforming businesses like WhiteHat Jr. and Osmo. Efforts are underway to scale down these businesses to mitigate losses while sustaining growth in other areas. Byju’s has been embroiled in a prolonged dispute with lenders since June, halting interest payments on loans and engaging in negotiations for repayments.

As Byju’s seeks fresh funds at a substantial discount of 99% from its previous valuation, the company said it is focusing on rebuilding its core business. Post-share sale, the company plans to concentrate on generative artificial intelligence for hyper-personalized learning, aiming to stabilize its operations amid financial challenges.

Byju’s however, isn’t the only Indian unicorn (private companies valued at over $1Bn) among the 112 that the country boasts, that is facing an uncertain future. Having raised billions in the bullishness that came across digital business post-COVID, several of these unicorns are now finding tough to prove profitable business models. Investors too have become cautious in approach, which has had a direct impact on the fundraise done by India’s startups as a whole. Funding for Indian startups dropped to a five-year low in 2023, with a total of just $7Bn having flowing into the ecosystem, according to data from Tracxn.