A reset is on cards at Byju’s cap table post rights issue value cut

Byju's proposed rights issue at a steep 99% cut to its peak valuation of $22 billion is likely to reset the captable at the financially-beleaguered edtech firm.

Depending on the final set of investors subscribing to the share sale, Byju’s founder Byju Raveendran may also end up owning more in the firm if he manages to arrange capital for the financing.

Any existing investor in Byju’s who doesn’t participate in the rights issue may practically see its stake fully erode. This happened during PharmEasy’s right issue, which was done at a 90% cut in valuation. Staff stock options or Esops will be protected as per the terms and the company can issue more options to employees to recoup the loss in value.


People said Byju's has also priced the rights issue low to secure funding at the earliest, given the dire need of the capital and also to avoid more pressures from a group of investors who have expressed reservations over Raveendran’s involvement in the day-to-day running of the company.

"At a $2 billion valuation, a number of investors would have raised questions and some less at even $1 billion. With literally nominal value at $20-25 million, if you don't invest now, then there is point complaining," a person aware of the discussions said.

The rights issue is open for 30 days and investor conversations on further details may begin soon. Raveendran has been determined about his role in the company even as the firm appointed a new India CEO Arjun Mohan in September last year.

Raveendran has to arrange at least $40-42 million for his pro-rata investment in Byju’s. Prosus, which owns a 9% stake, has to put in about $18 million to retain its holding while the figure would be around $14 million for Peak XV Partners (earlier Sequoia Capital India).

Also read | From $22 billion to $1 billion: Byju’s valuation at BlackRock bottom

“Most investors have mid-to-high single digit stakes in the company. It’s now or never. The company is in distress and if anyone wants to invest higher than pro-rata, then the fund/individual will stand to gain more stake at a cheap price,” one of the people mentioned above said.

How these conversions will play out will only become clear over the next couple of weeks and before the deadline ends for the rights issue. For instance, during PharmEasy’s rights issue, an offer from Manipal group chairman Ranjan Pai–an external investor–rallied other investors to subscribe to the issue.

Also read | For more capital, Byju’s must pass a tough test

Byju’s, as per the current plans, will only tap external investors if the rights issue is not fully subscribed. The firm has been in talks with several large investors over the past year for funding but the valuation sought by the company was high, deterring potential investors. The people cited above said this is set to change given the company’s desperation for fresh capital.

General Atlantic, Mirae Asset, Chan Zuckerberg Initiative, and BlackRock figure on Byju’s cap table, which has close to 80 investors.

“We have to take the proposal to the internal investment committee and then take a call. Conversations have begun,” an investor in Byju’s said on the rights issue.