What started as a promising ed-tech startup Byju’s, worth $22 billion, has now nose-dived into a deep crisis. A clutch of its major investors, including Prosus and BlackRock, have cut the value of their investments in Byju’s to zero.
This has been due to a mix of factors: financial instability, a complete lack of transparency, and legal troubles that never seem to end. But, why are investing firms valuing Byju’s investments at $0?
Financial Instability and No Transparency
Investors have been scared off by Byju’s financial problems. The company, which earlier was seen as a powerhouse in the Indian startup ecosystem, has been wrestling with financial health for some time now. Chief among these, of course, is an overall lack of information about current finances.
Investors, including Prosus, have been very vocal about how annoyed they are at the lack of information and data regarding Byju’s financial health, liabilities, and outlook in the future. There has been no transparency, which has made it very hard for investors to establish the true value of the company.
Prosus, a central shareholder of 9.6 percent in Byju’s, wrote down its investment to nil value; the tech investor recorded a fair value loss of $493 million in its FY24 annual report.
According to a Prosus spokesperson, writing down Byju’s was majorly influenced by the view of the firm that there was insufficient information availed on the financial status of the company. That is similarly shared by BlackRock, another of the largest investors who also valued its stake in Byju’s at zero.
Apart from financial instability, there are several lawsuits against Byju’s. These have contributed to tainting the confidence of investors in the company even more. For example, some creditors petitioned a court in the US to declare Byju’s subsidiaries bankrupt over a $1.2 billion loan. This is very risky to be exposed to such uncertainty, especially when investors are blinded to see how it will revive itself again.
The governance concerns at Byju’s are one such factor. Investors, including Prosus, have been demanding the removal of the company’s CEO, Byju Raveendran, and his family members from the board, which would be a good starting point in bringing about some form of improvement in governance standards at the company and protecting shareholder rights.
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Recent reports of its India CEO leaving in April and the company missing filing its financial reports for 2023 only add to growing governance concerns over Byju’s.
Impact of Market Conditions and Operational Challenges
Byju’s growth was majorly accelerated during the COVID-19 pandemic, which accelerated the demand for online education. Students have since returned to real-life classes, their demand for online education now diminished. Byju’s has also been making expensive acquisitions that strain its financial resources and impact bottom-line performance.
The company has been cutting even the salaries of new sales hires by 90 percent to save money, as per a local outlet called Inc42. Sure, such extreme steps indicate just how grim the situation is over Byju’s finances. An inability to pay salaries to its employees clearly underlines the fact that Byju’s is in deep financial trouble.
The steps major investors such as Prosus are taking indicate there is a broader sense of caution and pessimism over Byju’s future. Prosus has marked the internal rate of return from its investment in Byju’s minus 100 percent in a slideshow for investors. This is a stark figure that gives an idea of how huge the losses incurred by the investors are.
But to explain further the current situation of Byju’s, external factors have played an equal role. Of late, the global economic environment has remained hostile, with rising inflation, increasing monetary policies, and global geopolitical tensions hitting investor sentiment. These factors contributed to a deterioration in the capital-raising ability of companies like Byju’s, whose valuations went down accordingly.
Despite these odds, there a few beacons of hope still prevailing for Byju’s. Prosus management sounds positive about the future of the company and says that the first step toward changing the company would be to change its governance and secure the rights of shareholders. That will take a lot of doing because a real turnaround of events would only be possible by taking stringent actions against such major issues like financial instability, lack of transparency, and governance issues.
