Byju's Crisis Continues: US Investors Accuse It Of Hiding Half-A-Billion Dollars, While It Faces Raids In India

In late April, Indian authorities conducted a raid on the Bengaluru offices of Byju's, an education-technology startup.

They seized laptops and publicly associated the company with potential foreign exchange violations.

In addition to the raid by the Enforcement Directorate (ED) of India, responsible for investigating money laundering and forex violations, Byju's had failed to file its financial accounts on time.

This failure resulted in accusations from several US-based investors, who claimed that the company was hiding half-a-billion dollars, leading to lawsuits.

Byju's and its founder, Byju Raveendran, have both denied any wrongdoing.

Concerns about Byju's finances have pricked at the firm's reputation since classrooms re-opened post pandemic.

Investors have questioned why Raveendran, the founder, delayed hiring a chief financial officer for years and rapidly acquired more than a dozen companies worldwide.

The company has, in near past, seen numerous employee departures and terminations, resignations from board members, and a significant decline in the number of students attending teaching centres.

Within India's startup ecosystem, Byju's is viewed as the most prominent example of what can happen when a business scales rapidly in one of the world's fastest-growing economies but fails to plan for potential downturns.

Byju's founder, Raveendran, has chosen not to consult investment bankers for deals and instead relies on his chief strategy officer, Anita Kishore, to handle most transactions. This approach has been reported by Byju's employees.

In the meantime, Indian officials have raised concerns about Byju's inability to close its financial accounts for the fiscal year ending March 2021.

The ED has issued summons to company officials, as per sources familiar with the matter.

Byju's was not charged after a raid in late April, but the Ministry of Corporate Affairs is currently considering whether to initiate a formal investigation, as reported by Bloomberg.

After a delay of eighteen months, Byju's finally released audited statements, revealing a significant increase in losses. The losses amounted to 45.7 billion rupees, a thirteen-fold jump from the previous year.

Byju's attributed the poor performance to accounting practices that deferred revenue to future years, while others noted a substantial rise in marketing spending.

Following lengthy negotiations spanning eight months, Byju's lenders in the US have taken legal action against the firm in Delaware. They have accused Byju's of concealing $500 million and argue that the firm is in technical default on the $1.2 billion loan, due to its failure to provide regular financial updates.

The stakes continue to rise as these key players distance themselves from Byju's.

Prosus, an investor in the ed-tech company, in a statement on 25 July, explained that the company's reporting and governance structures had not kept pace with its significant growth since their initial investment in 2018.

This lack of evolution led to the resignation of their director from Byju's board.

In response to the recent departures, Byju's CEO, Raveendran, and the newly appointed CFO, Ajay Goel, have taken steps to address the situation.

They have hired an affiliate of accounting firm BDO to take over auditing and have committed to finalising the long-delayed financial accounts by the end of September.

Byju's is now working diligently to regain the trust and confidence of its shareholders.