Byju's cuts valuation ask by 99% in rights issue amid cash crunch

Byju’s, the world’s most valuable edtech startup, has cut its valuation ask by 99% in a rights issue it launched Monday as the Indian firm scrambles to meet its liabilities and operational costs. The startup is looking to raise $200 million in the rights issue, capital it said was “essential to prevent any further value impairment.”

The startup, once India’s most valuable, is resetting its valuation to “next to nothing” in the rights issue, where all existing investors have an opportunity to participate, according to a source familiar with the matter. If Byju’s succeeds in raising $200 million, the post-money valuation of the startup will be in the range of $220 million to $225 million, a 99%-plus drop from the $22 billion value that the startup had attained in 2022, according to the source, who requested anonymity sharing nonpublic information.

Byju’s founder Byju Raveendran told shareholders in a letter Monday that he and other founders of the edtech group have invested $1.1 billion into the Bengaluru-headquartered startup in the last 18 months and seek continued support from the 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,” Raveendran wrote in the letter, seen by TechCrunch.

The rights issue comes as Byju’s looks to secure capital amid a severe funding crunch. The startup, which spent $2.5 billion acquiring more than a dozen firms in 2021 and 2022, has raised more than $5 billion in equity and debt from backers including General Atlantic, Silver Lake, Peak XV, Lightspeed, Chan Zuckerberg Initiative, BlackRock, UBS, Prosus Ventures and B Capital. Byju’s said in a statement that it expects the rights issue to close in 30 days.

“It has been 21 months since our last external capital raise, during which we have cut our burn and worked to become a lean organization, razor-focused on execution. The board believes it is imperative that the company raises capital in order to create a glidepath to deliver strong shareholder value,” Raveendran wrote in the letter.

Byju’s is not the only high-profile Indian startup that has struggled to raise capital in recent years. Online pharmacy startup PharmEasy cut its valuation by over 90% to below $600 million in a rights issue last year. The startup had raised over $1.5 billion in equity and debt prior to the rights issue.

Byju’s has been chasing new funding for nearly a year. The startup was in the final stages to raise about $1 billion last year, but the talks derailed after the auditor Deloitte and three key board members quit the startup. Instead, Byju’s ended up raising less than $150 million in that round from Davidson Kempner and had to repay the investor the full committed amount after making a technical default in a separate $1.2 billion term loan B.

Byju’s was preparing to go public in early 2022 through a SPAC deal that would have valued the company at up to $40 billion. However, Russia’s invasion of Ukraine in February sent markets downward, forcing Byju’s to put its IPO plans on hold, according to a source familiar with the matter. As market conditions worsened, so too did the business outlook for Byju’s.

Some of Byju’s investors have publicly aired their concerns about the startup in recent quarters, questioning some of its business decisions and demanding greater governance. In a way, the rights issue allows Byju’s to part ways with its existing investors who have become naysayers. Those who do not participate in the rights issue will lose their entire equity position in the startup.

Raveendran's letter to shareholder ends with a quote from William Ernest Henley: pic.twitter.com/T1gHhBSgC4

— Manish Singh (@refsrc) January 29, 2024