Excerpt from MoneyControl Article, Published on June 26, 2024
An investigation by India’s Ministry of Corporate Affairs has revealed lapses in corporate governance at Byju’s but cleared the embattled online education startup of financial fraud. The yearlong probe found no evidence of fund siphoning or financial manipulation, according to sources familiar with the matter.
The investigation highlighted governance shortcomings that have contributed to Byju’s increasing losses. These findings come as a partial vindication for founder Byju Raveendran, who has faced accusations of mismanagement from some investors. Notably, three shareholders, including Prosus Ventures and Peak XV Partners (formerly Sequoia Capital India), left the board last year over disagreements with Raveendran on business processes and internal controls.
The report is not yet public, and representatives from the corporate affairs ministry, Byju’s, Peak XV, and Prosus did not respond to requests for comment. The investigation does not explicitly address Raveendran’s personal responsibility for the governance lapses or his capability to lead the company, despite calls from discontented investors for his removal due to management and compliance failures.
Byju’s continues to face significant challenges. The startup’s rapid expansion has led to a cash crunch and a significant drop in valuation. It is also entangled in multiple lawsuits in India and the US. The probe indicated that poor corporate governance and compliance practices, combined with a changing funding environment, have exacerbated its financial woes. Investigators found that the company did not bring in professionals to manage finances and compliance, contributing to its losses.
The report also noted that Byju’s failed to fully disclose acquisition details to all directors and often convened approval meetings on short notice. However, it recognized the founders’ argument that some directors were also investors in rival companies. At its peak, Byju’s was valued at $22 billion. The company saw a surge in business during the COVID-19 pandemic, but its cash reserves dwindled as in-person classes resumed. Despite raising over $100 million from existing investors, an Indian court has barred Byju’s from using these funds amidst ongoing bankruptcy battles.
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