The recent searches by the Enforcement Directorate (ED) at BYJU’S premises may come as a setback for the edtech major that has been actively looking to raise additional funds.
Earlier this month, various media reports had said that BYJU’S has raised $700 million at a flat valuation of $22 billion, in two separate deals of equity and convertible notes. The round was said to be led by two West Asia-based sovereign wealth funds and large private equity firms. However, the company had not officially confirmed the fundraise.
It was looking to raise around $250 million through a convertible note issue by Aakash Educational Services, the tutorial chain it acquired in a cash and stock deal of $950 million, last year. It was said to be a pre-IPO round aimed at solving cash crunch issues, according to reports. On the current state of the fundraise, a source close to the development said, “Both the deals are on and are progressing.”
ED’s search and seizure report, which said that “various incriminating documents and digital data was seized” and other FEMA violations were found, may change the venture capitalists (VC) sentiment. With the added whammy of funding winter in the start-up ecosystem, BYJU’S might have a hard time raising funds going forward.
V. Laxmikanth (VLK), Managing Partner, Pavestone Capital, told businessline, “With the funding winter in play such alleged incidents will further impact sentiment negatively. VC firms will enhance focus on risk and governance making it integral part of their portfolio review. Start-ups that make this part of the process will find it easier to attract capital.”
BYJU’S, in its last round, had raised $250 million from Qatar Investment Authority and other existing investors at a valuation of $22 billion in October 2022. The company’s valuation has been the same since March 2022, when it had raised $800 million.
However, the company’s valuation has been under contention after Prosus, the Netherlands-listed investment arm of South African conglomerate Naspers, recorded the fair value of its 9.67 per cent stake in BYJU’Sat $578 million. This projected valuation is essentially 73 per cent less than its quoted $22 billion valuation.
ED, post the search conducted at three premises - two business and one residential - of Think & Learn Private Limited, which runs BYJU’S, revealed that the company has received foreign direct investment to the tune of approximately ₹28,000 crore during the period from 2011 to 2023.
Further, the company has also remitted ₹9,754 crore approximately to various foreign jurisdictions during the same period in the name of overseas direct investment. The company has booked around ₹944 crore in the name of Advertisement and Marketing expenses including the amount remitted to foreign jurisdiction, it further noted.
BYJU’S has also been accused of not preparing its financial statements since financial year 2020-21 and not getting the accounts audited. According to ED, founder & CEO Raveendaran Byju, remained evasive and never appeared during the investigation. .
Raveendaran in an internal note to employees said, “BYJU’S has taken all efforts to fully comply with all applicable foreign exchange laws and all our cross-border transactions have been duly vetted by both its professional advisors/counsel and advisors/counsel of the investment funds and other sophisticated counterparties.”
Additionally, all such transactions are routed only through regular banking channels/the RBI’s authorized dealer banks and the requisite documentation and statutory filings have been duly submitted. I want to reassure you that we are fully cooperating with the authorities, he added.