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Leading technology investors are fighting to remove the founder of Byju’s, the Indian education technology start-up whose valuation has crashed amid allegations of mismanagement and governance failings.
The Karnataka High Court is hearing a case that will help determine whether Byju Raveendran, a former celebrity tutor, will stay in control of the eponymous online education group he founded in 2011.
Shareholders, which include Qatar’s sovereign wealth fund, Dutch-listed tech investor Prosus, VC firm Sequoia’s former India arm Peak XV and the Chan Zuckerberg Foundation of Meta founder Mark Zuckerberg, voted last month to remove Raveendran as chief executive and overhaul the board, following a months-long dispute with the founder.
The vote has been stayed by the court, with a hearing on Thursday adjourned, and investors are bracing for a protracted legal battle.
At its peak in 2022, Byju’s was estimated to be worth $22bn as India’s most valuable start-up, attracting some of the world’s most prominent venture capitalists and going on a global acquisition spree.
Yet the company fell into crisis, defaulting on a $1.2bn dollar-denominated term loan it took out in 2021 and falling into a legal battle with creditors. Deloitte resigned as an auditor last year after delays to accounts, which showed losses nearly doubling year over year to Rs82.5bn ($990mn) for the 12 months ended March 2022.
India’s economic crime agency, the Directorate of Enforcement, last year searched Byju’s offices and found the company had violated foreign exchange rules over transactions worth Rs93.6bn. Byju’s declined to comment for this story, but said at the time it was “a technical issue” and denied wrongdoing.
Investor frustration culminated with representatives of Prosus, Peak XV and the Chan Zuckerberg Foundation resigning from Byju’s board last year and launching the attempt to remove the founder at an extraordinary meeting last month. The majority of shareholders present voted with the investors.
“As long-standing investors in Byju’s, our current position is rooted in a sole objective: to safeguard the interests of the company and its stakeholders,” Prosus said. “The actions that we’re taking follow more than two years of concerted private and public efforts to address critical outstanding issues related to governance, financial mismanagement and compliance.”
Byju’s petitioned the court last month to either prevent its investors from holding the meeting or suspend the outcome of the vote. The judge ruled that any decision taken at the meeting would be suspended until it concludes hearings.
Byju’s has previously called the vote “invalid” and “farcical”, saying the meeting did not have a quorum of shareholders and “was designed to provoke a trial by the media”.
The company’s value has fallen precipitously, with Byju’s this year launching a rights issue that values it at less than $250mn. Some investors question whether they can save anything at all. “At this point, it is no longer about getting money back,” one said. “It is about mitigating reputation risk and that is why we would like to see the founder leave.”
Byju’s woes are a blow to India’s tech sector, which has grown to become the world’s third-largest thanks to the country’s large population and widespread internet adoption. But investor giddiness has been marred by a series of high-profile crises.
“There has to be a restoration of confidence from the management in [Byju’s] finances,” said Nirgunan Tiruchelvam, an analyst at Alētheia Capital in Singapore. “It’s important for investors to set up a governance structure that monitors the management. Pointing the blame at the management exclusively may not be accurate.”
