The Rise and Fall of Byju's: How India's Edutech Giant Crashed, Costing US Investors Billions

The outcomes of Indian court rulings on the company's insolvency plan will significantly influence recovery efforts and creditor repayments. The extent of recoveries for U.S. creditors remains uncertain at this stage.

On Wall Street, the narrative surrounding Byju’s was compelling, embodying the quintessential startup success story. It was positioned as the most valuable startup in India, boasting technological prowess akin to that of Silicon Valley and led by a dynamic founder with grand aspirations to dominate the online education sector, a realm that was predicted to flourish in the wake of the pandemic.

Crucially, Think & Learn Pvt, better known as Byju’s, was keen on borrowing substantial amounts of money from the US markets, especially at a time when interest rates were remarkably low. This willingness attracted significant interest from investors when JPMorgan Chase & Co. and Morgan Stanley mobilized buyers for Byju’s debt issuance towards the end of 2021. The demand was overwhelming, resulting in the deal size being expanded to $1.2 billion, equipping Byju’s with necessary funds aimed at driving global expansion and positioning it as a potential hot stock in India's burgeoning market.

However, what transpired afterward was far from the anticipated success story. The company faced a precipitate downfall, leading to a legal battle that is gradually reaching a resolution, yet may leave creditors with minimal recovery. When debt holders sought to reclaim over half a billion dollars from Byju’s accounts in the US, they found nothing after the funds were allegedly moved to a hedge fund based in Miami. In a remarkable turn of events in late November, the presiding US judge indicated intentions to alert criminal authorities, prompted by claims from a Nebraska businessman who alleged that Byju’s founder attempted to prevent his testimony with a lucrative job offer in Dubai.

This unfolding situation serves as a sobering reminder of the risks involved in lending practices during periods when money can swiftly vanish across international borders. Moreover, it casts a pall over the ongoing startup boom in India, an economy that has been attracting global investors due to its rapid growth.

Michael Kugelman, director at the Wilson Center’s South Asia Institute, remarked on Byju’s initial rise and subsequent decline, stating, “Byju’s exploded onto the scene as an upstart with major upside potential, and the company’s rapid descent is stunning and sobering.” Despite numerous attempts, Byju’s and its founder, Byju Raveendran, have refrained from commenting on the situation and the allegations made by creditors, with Raveendran and his team denying any misconduct in court documents and testimonies.

Raveendran emerged as a prominent figure in India’s tech ambitions, receiving investments from renowned entities like Sequoia Capital and the Chan Zuckerberg Initiative. His journey began in 2005 when he started tutoring students in Bengaluru, and the rapid growth of his business soon necessitated larger venues, including stadiums, to accommodate scores of students. Following a transition to digital education through a self-learning app focusing on subjects like math and science, Byju’s embarked on an aggressive acquisition strategy in the pandemic’s aftermath, acquiring rivals and swiftly increasing its valuation to around $22 billion by early 2022.

However, challenges arose as the US Federal Reserve began to raise interest rates, leading to heightened financing costs for Byju’s and a subsequent withdrawal of bank loans that had been facilitating customer payments for long-term contracts. By late 2022, the company found itself negotiating with nervous lenders amid fears of default following the delayed release of its audited financial statements.

This predicament escalated into legal action in Delaware state court in mid-2023, initiated by debt holders aiming to secure control over Byju’s Alpha, a subsidiary thought to hold unspent loan proceeds. In response to the dwindling interest payments, Byju’s accused creditors, particularly Redwood Capital Management, of creating a crisis. Following a bankruptcy filing, investigators discovered that approximately $533 million in loan proceeds had been transferred to a small Miami hedge fund, drawing the ire of the court. The hedge fund manager’s testimony indicated that these funds were redirected to a logistics firm in London, but Raveendran disputed any wrongdoing, asserting the funds were earmarked for repayment to the logistics company for purchases made on behalf of Byju’s.

Further allegations emerged during court proceedings, where a Nebraska entrepreneur claimed Raveendran sought to orchestrate a covert buyback of US debt from creditors to reclaim control of Epic!, an education software entity currently under trustee supervision. This businessman testified that Raveendran attempted to persuade him to evade testimony by offering a high-paying position in Dubai along with a plane ticket. The judge overseeing the case indicated intentions to refer the matter for potential witness tampering to federal prosecutors.

As the creditors continue to push for accountability, their concerns have intensified, with representatives asserting that Raveendran has actively misled regarding loan whereabouts to siphon off value owed to lenders. Presently, the focus shifts to Epic! along with two other US-based software platforms recently acquired for approximately $820 million. Efforts are underway by investment bankers to sell Epic!, as well as Neuron Fuel Inc., while the future of Tangible Play Inc. remains uncertain, potentially facing closure.

Despite potential asset sales, experts estimate these efforts would only partially satisfy creditor claims, projecting recovery of about $150 million to $200 million. The broader recovery landscape remains vague, hinging on Indian court rulings concerning the company’s insolvency strategy and repayment intentions.

Consequently, the current market values on loans maturing in 2026 reflect a stark downturn, priced at roughly 13 cents on the dollar. Paul Silverstein, an attorney with Hunton Andrews Kurth, conveyed that collecting substantial value from both US and Indian assets will be a prolonged and complex endeavor and cautioned that while recovery is possible, it remains a lengthy and challenging process.