Byju Raveendran’s rocky, humbling slide to his last chance saloon

Byju Raveendran has been pushed back to the wall. While he lived on the edge for the past two years, the risk of losing every inch of his ed-tech empire, once valued at $22bn, is staring at him more starkly than ever. Among those who know him, opinion is divided on whether he is trying to find a way out or prolonging the agony.The settlement with the Board of Control for Cricket in India (BCCI) on the payment default case would have given Byju’s a breather. That would have taken the company out of bankruptcy proceedings at the National Company Law Tribunal (NCLT).But those hopes have dimmed with the Supreme Court questioning the settlement and observing that the company owes its creditors $1.2bn. Term-loan holders have been emboldened by the Supreme Court’s pronouncements. The Byju’s board has been suspended and the insolvency resolution professional has taken over the management of the company.Raveendran’s personal resources have long dried up. He has run out of options to make stop-gap arrangements. The sand under his feet keeps eroding, as the matters concerning Byju’s liabilities are stuck in the legal process at court every single day.How did things get to this stage?₹158 crore. That was Byju’s BCCI sponsorship dues. A company that was valued at ₹16,5000 crore 18 months ago has gone under bankruptcy because of the non-payment of an amount that is thousandth of that valuation. There is no money in the bank.“Who cares about $300mn. I can raise that in a week,” Raveendran had told Moneycontrol in September 2022. The situation right now is a far cry from that period.The failed rebootThe cracks in Byju’s became all too visible when an avalanche of crises — board member resignations, auditor exit, provident fund deposit default and lenders’ revolt — hit the company in mid-2023. But it was still the largest ed-tech player in the country by a huge distance. It had attractive assets spread across various geographies, which meant it could still raise money and tide over the crisis. That might have required deep structural changes and some asset sale. This could have resulted in a steep cut in valuation and tempered expectations about the company’s prospects. But a reset was seen within the realm of possibility.Billionaire Ranjan Pai who lent his support, corporate veterans Mohandas Pai and Rajnish Kumar who came in as advisers and a small team of professionals they assembled had this confidence. One of the first things that the advisers did was to form an informal working group that comprised half-a-dozen key investors. That was necessary to repair the broken relationship between Raveendran and investors. They made some progress. A couple of investors even met Raveendran in person in Dubai. Some of them expressed the willingness to return to the board. They, in principle, agreed to invest around $300mn, which would have steadied the company at that point.On his part, Raveendran agreed to their key demand. That was to step away from the day-to-day management of the company. Investors wanted him to give way to a professional CEO. A source mentioned that they had identified Suraj Moraje, a McKinsey veteran who was formerly CEO of Quess Corp, as the replacement of Raveendran.After some back and forth, Raveendran put forward a condition: he would remain the group CEO and chairman but would give away the operational management to this lateral hire who would be designated as president. His appointment would be coterminous with the first tranche of the much-needed bridge funding.According to sources, that fragile peace agreement fell through primarily because of a disagreement over the ‘coterminous clause’, as ET Prime had reported in February.That was a precipitous turn of events for Byju’s. As somebody who mediated peace between Raveendran and the investors told them, “Nobody is a winner in this game.” The founder had the most to lose. “All his problems would have been sorted out in one shot if he had stepped down. He could still maintain his stake. Why didn’t he do it?” said one of the investors.But Raveendran became more combative at this point. As mentioned in the article cited above, he rolled the last dice. He initiated a $200mn rights issue to recapitalise the company.Against the calculations of the disgruntled investors, the issue went through. Facing a near-complete ejection from the cap table, the disgruntled investors challenged the legality of the rights issue at the NCLT.A dispute redressal of this nature at the NCLT would be a painfully time-consuming process. The case effectively denied Byju’s the funds raised through the rights issue, which was so vital for the day-to-day running of the company. medium nocaptionhttps://youtu.be/noSbkYqr2ts?si=LQtvKkyqmUuYKOTWThe BCCI googlyThe direct fallout of the rights issue deadlock was a default crisis at Byju’s. A host of vendors whom Byju’s owed money showed up. The biggest liability was the ₹158 crore that Byju’s owed to BCCI as the sponsor of the Indian cricket team. According to sources, this had remained unresolved for about two years and Raveendran could have addressed this easily before it went out of control. But his overoptimism, unflinching confidence and characteristic brinkmanship proved to be a challenge in assessing the gravity of this issue. He reacted a tad too late.Things came to a standstill once the insolvency proceedings kicked in. It immediately impacted on the audit work that was already lagging by a year. Part of Byju’s problems arose from the lack of audited financial reports. After Deloitte’s sensational exit as auditors of Byju’s books in mid-2023, a fresh fundraise became difficult. Also, the term-loan lenders had raised an alarm over the lack of audited financials. So, putting financials in order became very critical for Byju’s.With BDO replacing Deloitte as auditors, Byju’s managed to put out the FY22 results earlier this year. That was nearly 22 months after the end of the period under review. Its FY23 and FY24 financials are still pending.Last month, BDO resigned and Raveendran called the act as escapist. In effect, audit remains where it was a year ago — woefully behind schedule.The most debilitating impact of the insolvency process was that it gave an opening to Byju’s exasperated US lenders who had had little success with regulatory forums in India. It is their representative — Glass Trust — challenging the BCCI settlement in the Supreme Court that has led to the current state of suspended animation.Series of misstepsByju’s resurrection from the current state is not easy. A legal expert suggested the likelihood of the Supreme Court asking the NCLT to review the insolvency resolution professional’s decisions on the committee of creditors. The insolvency resolution professional had earlier dismissed US lenders from the committee of creditors. A review of that decision would mean the imbroglio would remain for a considerable period. That can be detrimental to any rescue efforts.The cash crunch is biting Byju’s hard. According to sources, lawyers stopped appearing for Byju’s in US courts in the case with lenders. The TLB (term loan B or institutional term loan) holders already placed Byju’s US subsidiaries Epic, Tynker and Osmo under chapter 11 bankruptcy. The Singapore-registered entity of another subsidiary, Great Learning, too, is said to be under their control. These companies were the guarantors of the $1.2bn term loan.That leaves the holding company Think & Learn with its flagship K-12 learning business. Byju’s practically lost control of tutorial chain Aakash, which was the only green patch in its ed-tech universe.The founder family — Byju Raveendran, his wife Divya Gokulnath and brother Riju Raveendran — have put most of the money they raised through secondary share sale back into the holding company. Qatar Investment Authority has laid claim to Raveendran’s personal stake in Aakash for the loan it extended to finance the acquisition of that company. medium nocaptionhttps://youtu.be/suR8cc1er0M?si=o1VEGKKeiF1KVoBXIn sum, Raveendran could lose most of what he built over the past decade and a half. In hindsight, he could have done many things differently. What are the major missteps?The financial tangle: A source with direct knowledge of the matter pointed out that the company’s aggressive revenue recognition practice — booking the entire revenue upfront for fee payment for multi-year courses — was greenlighted by the same auditor for six years before they objected to this practice. The company never really came out of this jolt. This issue derailed its financial filing. Running the business without a strong finance team and a competent CFO for a very long time proved to be fatal for a complex organisation of Byju’s scale.The WhiteHat blooper: The all-cash $300mn acquisition of coding education startup WhiteHat Jr turned out to be disastrous. That company brought not just its share of disrepute, but also losses. It had nothing much to show for and was eventually shut down. Investors were divided on this decision. While some actively pushed Byju’s to acquire WhiteHat Jr, some others advised Raveendran against it. He obviously walked into it; the first of many expensive acquisitions.Sky high Aakash: Raveendran was blindsided by Byju’s supersonic growth while agreeing on the terms of the Aaakash buyout deal, according to sources. The company did not have enough money when it signed the deal to acquire Aakash for $1bn in 2021. A year later, it got into trouble with Aakash’s original promoters, the Chaudhry family, and their investor Blackstone for not meeting commitments.Initially when the deal was signed, Raveendran did not mind offering terms such as 70% cash component as he had optimistic scenarios in front of him. A potential US listing via reverse merger at $40bn in the US was on the cards. But many such things, including some large equity-investment commitments, turned out to be a flash in the pan. The easy-money regime changed within months of this deal, forcing Raveendran to make financing arrangements.The one-man show: In many such strategic and operational mistakes, the organisational weaknesses of Byju’s became visible. Profligacy and mismanagement remained unchecked. It is being whispered within Byju’s corridors that tablets for students worth at least a hundred million dollars are gathering dust somewhere.The core group of the founder family and early students of Byju’s were not equipped to handle the growing complexities, be it investor relations, bookkeeping or organisation building. Raveendran’s exaggerated belief in his own problem-solving skills and financial engineering genius was unbridled even during the crisis. As we pointed out in a previous article, the company lacked corrective ability. medium nocaptionhttps://youtu.be/5fltvh1Olzs?si=Gskbh08l8glUiAVQThe anti-fragile?Despite all this, at the height of trouble, Raveendran’s charisma, confidence and pleasantness remained unshaken. A strong group of corporate veterans stepped in to help with expertise and network. Some of the large corporations, too, offered support. But they all put their hands up. The enormity of the problem and sheer lack of money were beyond the capacity of some of the most resourceful people.While that is one reason, the other is Raveendran’s enigmatic nature. Two persons said that he kept people in his close circle guessing on crucial matters. He did not fully take people into confidence.While the odds are mindbogglingly high, Raveendran has shown a distinct founder quality of anti-fragility. That could also be interpreted as self-defeating stubbornness. He already outlasted the calculations of detractors. He must be still plotting a comeback. “His mind is a bullet train, working on plan B, C and D simultaneously,” said one of the persons cited earlier in the story.One possible scenario is his re-emergence as a teacher. It all started with his immense popularity as a maths teacher. He might start all over again, possibly holding fast to harsh learnings from the first chapter.