'What has happened at Byju's is no surprise to anyone.'
The web of crisis at Byju's, India's leading edtech firm, has reached a crescendo as the company fights back investors who poured billions into it.
How the fight ends remains to be seen, but murmurs within the startup world are gauging the spillover effect of the Byju's saga on the ecosystem.
Once pegged as India's most-valued startup, Byju's is facing multiple challenges that include a massive cash crunch, delays in financial reporting and legal disputes with lenders.
It is now raising $200 million through rights issues at a post-money valuation between $230 million and $250 million, a staggering 99 per cent drop from the $22 billion valuation the firm boasted in 2022.
The verdict among fellow startups is divided so far. An industry executive said that investors tended to have a herd mentality.
When things were going well for Byju's, they kept pumping money into the firm and inflated its valuation to about $22 billion, the executive pointed out.
The recent numbers that the company filed for FY22 are worrisome.
Byju's income grew to Rs 5,298.43 crore (Rs 52.98 billion) in FY22. But its losses widened to Rs 8,245.2 crore (Rs 82.45 billion) in FY22. Its total expenses for FY22 rose by 94 per cent to Rs 13,668.44 crore (Rs 136.68 billion).
"How can you spend so much?" said a source, who added that the investors were praying that the company survived so that they could get some of their money back.
The industry, meanwhile, is aghast at Byju Raveendran, the billionaire founder of the edtech that is facing calls for a change of leadership
"I have no sympathy for Byju's because there's an integrity lapse, for which there is no excuse," said the founder of a large e-commerce startup who did not want to be identified.
"I am glad there is some accountability now, which is a healthy sign for the startup ecosystem. It sends the right message to not just large startups but also to the upcoming generation of founders," this individual added.
The disagreement between the founder and the investors has been building up since 2023.
First, the auditor Deloitte resigned saying it did not receive necessary documents for filing results, which has been delayed.
Also, investors who were the firm's early backers -- such as Prosus, Peak XV Partners (formerly known as Sequoia Capital India) and Chan Zuckerberg Initiative -- had stepped down from its board.
Many are wondering why the investors took a long time to ask for an extraordinary general meeting (EGM).
A consortium of key shareholders led by Prosus issued a notice to the embattled edtech firm, calling for an EGM to address 'persistent issues', which included a proposed change of management at the firm.
According to sources, these shareholders will vote in an attempt to alter the company's existing board, which includes asking founder Raveendran to resign from his post of CEO and relinquish his operational role at the firm.
An investor said the timing for seeking an EGM and the reason for doing so were both off the mark. They should have waited at least till the funds were raised through the ongoing rights issue, the investor said.
"The kind of pressure investors are putting on the company and the stand they are taking are making many entrepreneurs a bit wary, as almost every founder is going through similar issues."
Earlier, the investors were scared to highlight the problems at Byju's because they wanted to protect their investments, said a person familiar with the matter.
"Now they are talking because they have nothing to lose. They are upset to know that the founder has decided to raise money through a rights issue, without consulting them.
"Who does that, that too at a valuation, which is putting the firm back to its early days."
Byju's, in a statement, has said that the investors have no right to ask its chief executive to step down, as they do not have voting rights to ask for such a critical change.
"What has happened at Byju's is no surprise to anyone, and a problem at one company doesn't mean the whole startup ecosystem has to protect it," said an industry executive.
"There are bad eggs everywhere, but it doesn't mean that investors are not bullish on India," said another executive.
What the investors at Byju's were concerned about is that the leadership there has single-handedly eroded the value of the company, the executive added.
"They have been making decisions that have been harmful to the company. The investors now understand that the valuation of the firm may not be $22 billion, but at the same time it can't be just $250 million."
Feature Presentation: Ashish Narsale/Rediff.com