Byju’s blowup makes its investors look bad
3 min read
FILE PHOTO: People walk past an advertising hoarding of Byju’s, an education technology company and one of India’s biggest startup, outside one of its branches in New Delhi, India, June 23, 2023. REUTERS/Adnan Abidi/File Photo/File Photo
BENGALURU, Aug 7 (Reuters Breakingviews) – Byju’s says it provides learning programs to over 150 million students. The biggest lesson may be for the Indian education giant’s global investors including Prosus (PRX.AS) and Peak XV, formerly part of Sequoia, who watched founder power run amok in a country they have pinned high hopes on.
The duo in June abruptly quit the company’s board and have since complained that management under co-founder Byju Raveendran regularly disregarded advice. But so long as the blowup at the hot startup once valued at $22 billion goes from bad to worse, its backers will struggle to create enough distance.
A feud with lenders is being aired in a U.S. court, and Byju’s on Friday accused a group representing 85% of creditors of a $1.2 billion covenant-lite term loan of creating bogus default claims. Meanwhile, U.S. hedge fund Davidson Kempner is reorganising the board of the company’s prized test prep business Aakash after it breached terms of a $250 million loan, according to Bloomberg.
For early supporter Peak XV Partners, the mess comes at a sensitive time, hot on the heels of announcing a separation from its U.S. parent. Peak once owned 27% of Byju’s and its stake has fallen to 7% per Tracxn data compiled by The Arc, though the group probably earned many times what it invested by selling its stake to later-stage investors.
Amsterdam-listed Prosus was among those buying into Byju’s as the valuation skyrocketed; in March it assigned its 9.6% stake a fair value of $493 million, slightly less than it had invested since 2018. India has become a target market for the investment firm, with 123 mentions of the country in its annual report, versus 30 for China where the investor is busy trimming its stake in tech giant Tencent (0700.HK). So the problems at Byju’s make success at its other investments, including food delivery outfit Swiggy and online marketplace Meesho, all the more crucial.
The sting from the saga could get worse. India’s corporate affairs ministry has ordered an inspection of the startup’s books; Byju’s still doesn’t have audited results for the year to March 2022. The edtech’s investors may have trimmed ties but they will remain under pressure until the company they once enthusiastically backed gets some kind of official clean bill of health.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
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CONTEXT NEWS
Lenders to Indian startup Byju’s created bogus default claims tied to a $1.2 billion loan as part of a scheme to gain control of the education-technology provider, the firm’s lawyer told a Delaware court, Bloomberg reported on Aug. 4.
Byju’s told Reuters Breakingviews on Aug. 4 that discussions with its term loan lenders are progressing well, and that the next meeting with the group was scheduled for early next week.
A group of lenders that own more than 85% of the company’s $1.2 billion term loan had earlier said the process of renegotiating the debt would be closed by Aug. 3.
Prosus said on July 25 that Byju’s management “regularly disregarded advice”. Representatives of the Amsterdam-listed investor and Peak XV Partners, formerly Sequoia’s India unit, both quit Byju’s board in June.
Editing by Una Galani and Thomas Shum
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