Byju Raveendran is doing whatever it takes to keep employee morale up

There could be no starker reminder that the good times of 2021 have come to an end than edtech major Byju’s Founder Byju Raveendran pledging his assets, including an under-construction villa and family homes valued at around Rs 100 crore. The beleaguered firm resorted to this decision to meet the salary obligations of a portion of its employees.

Raveendran’s move indicates that he is anticipating a fresh infusion of funds and is taking this substantial risk to navigate the current cash crisis. It also demonstrates his commitment to his staff and is being seen as an attempt to lift their battered morale by assuring them that he’ll do whatever it takes to keep the business running.

“It demonstrates a level of commitment from the founder to ensure the company’s survival and maintain employee morale. This could be seen as a positive signal that the founder is willing to go the extra mile to keep the company afloat,” says Ashish Aggarwal, Director of VC firm ACube Ventures.

Soon after settling the salary dues, Raveendran gathered senior executives for a conference call, assuring them that the proposed sale of US-based subsidiary Epic would help the company address the current liquidity crunch.

“My regret is that I am letting down a wonderful team by not providing adequate capital,” he said. The math tutor-turned-entrepreneur highlighted the ongoing litigation surrounding the $1.2-billion Term Loan B (TLB) as a significant issue, which he said originated from a delayed audit and demand for a full refund from lenders.

The TLB, availed at the peak of its growth in 2021 to support an aggressive acquisition spree, lies at the core of the current crisis. Byju’s spent close to $3 billion across 13 deals in 2020–21, and the TLB was raised primarily to bankroll these acquisitions. As growth slowed post-pandemic and equity became scarce, the company found itself ensnared in the consequences of its high-risk gamble.

Subsequently, Epic and higher education platform Great Learning have been put on sale. The company is in advanced talks to sell Epic for about $400 million to private equity fund Joffre Capital Ltd. Meanwhile, the family office of Manipal Education and Medical Group’s Chairman Ranjan Pai acquired US investment firm Davidson Kempner Capital Management’s debt exposure in Byju’s-owned Aakash Educational Services for Rs 1,400 crore in November, providing the company substantial relief. The distressed debt specialist had issued Aakash a legal notice asserting its claim to shares pledged as collateral for the loan.

At Byju’s annual general meeting (AGM) on December 20, the primary agenda was to seek approval for the audited financials for the financial year 2022. The prolonged delay in finalising the audited financials has been at the heart of the contention among stakeholders, lenders, and potential investors.

In early November, Byju’s announced the closure of its audited financial accounts for FY22, delayed for over a year, marking a crucial milestone in its efforts to address criticism and stage a comeback. The embattled edtech major reported 2.3x year-on-year growth in revenues in FY22 for its core business, encompassing K12 learning programmes. While revenues surged to Rs 3,569 crore in FY22 from Rs 1,552 crore in FY21, operating losses narrowed to Rs 2,253 crore in FY22, from Rs 2,406 crore in FY21. However, the company did not release the numbers for its subsidiaries. With a portfolio of over 30 entities, Byju’s is required to submit comprehensive standalone and consolidated reports after they are approved at the AGM.

Meanwhile, the Board of Control for Cricket in India (BCCI) has approached the National Company Law Tribunal (NCLT) to initiate insolvency proceedings against the company for its failure to pay Rs 158 crore as per the contract for the sponsorship of the Indian cricket team’s jerseys. And, the Enforcement Directorate recently sent it a show-cause notice for allegedly flouting anti-money laundering norms.

For a company of its magnitude, the founder’s decision to pledge his homes raises questions about how the brand is seen by customers and new investors. It was already under pressure after its largest external shareholder, Prosus, slashed its valuation to under $3 billion—86 per cent below its peak valuation of $22 billion last year.

“This kind of arrangement is okay for a company that is just managing cash flow issues. But if the business is not supporting, then even such short-term borrowing is not a solution, as the company will be in a similar situation in a couple of months,” says Anil Joshi, Managing Partner of Unicorn India Ventures.

“While this measure (pledging homes to raise capital) may provide momentary respite, it also amplifies concerns on the company’s long-term sustainability. A billionaire founder pledging his home to pay salaries could be seen as a sign of desperation and could potentially tarnish the company’s brand image,” ACube Ventures’ Aggarwal says.

With each tick of the clock, the window for Byju’s to navigate the cash crunch and enhance the standing of its brand is narrowing.

@binu_t_paul