“My head is bloody, but unbowed,” wrote William Ernest Henley in his 1888 work Invictus.
A valued contribution to Victorian stoicism, inspired by the unexpected salvation of Henley’s remaining leg in the wake of tuberculosis complications. It is not, however, a piece one hopes to see quoted in an investor update. Unfortunately for those with stakes in Byju’s, founder Byju Raveendran felt its inclusion was warranted in his letter to shareholders this week.
Originally published in the January 31st edition of Transacted.
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An Indian edtech that was once the country’s most valuable startup, Byju’s is now hoping to raise $200 million from existing investors at a 99 percent discount to its most recent valuation.
Launched Monday, the round is structured as a rights issue, allowing all existing investors the option to buy additional shares should they choose. Management has characterized the move as “essential to prevent any further value impairment,” though the company’s post-money valuation is expected to fall somewhere below $225 million.
Byju’s was most recently valued at $22 billion in 2022, with more than $7 billion raised in equity and debt financing from firms including SoftBank, UBS Group, Silver Lake, and General Atlantic.
Even that mark was far from the company’s once lofty expectations. A year earlier, Byju’s came close to a $4 billion SPAC deal with Churchill Capital that would have valued the business at $48 billion. It had also previously held SPAC discussions with MSD Acquisition Corp. and Altimeter Capital Management.
Overheating
“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,” Raveendran told shareholders this week in preparation for the next phase of what has become a prolonged period of turmoil for the business.
Founded in 2011, rapid domestic growth caught the attention of international investors, who jumped at the chance to fund ambitions for expansion into a global edtech platform. Byju’s went on to spend $2.5 billion over more than a dozen acquisitions in 2021 and 2022.
In relatively short order, that global expansion turned to overextension. By the end of Byju’s shopping spree, breakneck user growth had cooled in the new return-to-school environment, and aggressive cash burn became more apparent after delayed fiscal year 2021 results showed a $560 million loss.
By early last year, Byju’s was in desperate need of cash to service both its burn and growing debt burden; principally a $1.2 billion term loan.
The company came close to a $1 billion equity raise, but negotiations fell apart after auditor Deloitte and three of the company’s board members quit, blaming their departure on the ongoing financial reporting shortfalls.
Even so, Byju’s secured a partial reprieve through $250 million in debt financing led by Davidson Kempner. That, too, failed to stick — after receiving less than half of the funding, Byju’s defaulted on its previous term loan, thereby breaching the new agreement and forcing premature repayment in full.
In the absence of institutional capital, founder Raveendran says the company has burned through a cumulative $1.1 billion of his personal cash provided to the business over the last 18 months.
Next Steps
Prior to this week’s stop-gap raise, a majority group of Byju’s lenders filed an insolvency petition in Bengaluru’s National Company Law Tribunal. The filing has not yet been made public, though Byju’s labeled the claim "premature and baseless.”
A company spokesperson added, "As we have stated before, the validity of lenders' actions, including acceleration of the term loan, is pending and under challenge in several proceedings, including before the New York Supreme Court.”
Alongside the various financing workstreams, Byju’s is working to unlock more capital through divestitures of its prior acquisitions.
Its first sale may be California-based digital reading platform Epic! Creations, acquired for $500 million in 2021. Reuters reported late last year that Joffre Capital, a private equity firm launched by former Baidu and Warburg Pincus leadership, was nearing a $400 million deal for the asset. Language learning platform Duolingo was also rumored to have participated in the Moelis-led process.
In November, a legal advisor close to the matter told the Financial Times that he expected “Byju’s to drive a lot of M&A in the coming months.” For equityholders, it looks like that may be too little, too late.