Three Byju's board members resigned over differences with the founder, but why didn't they do so sooner?

Delay in filing accounts, audit reports should have been cause for alarm and action

Published: Jun 23, 2023 02:28:33 PM IST

Updated: Jun 23, 2023 02:54:28 PM IST

In the latest blow for Byju’s three board members submitted their resignations due to differences with founder Byju Raveendran, leaving family Raveendran, his wife Divya and his younger brother Riju remaining on the board.

In the latest blow for Byju’s three board members submitted their resignations due to differences with founder Byju Raveendran. GV Ravishankar of Peak XV Partners (Sequoia Capital India and SEA), Vivian Wu of Chan Zuckerberg Initiative and Russel Dreisenstock of Prosus left the board, leaving family Raveendran, his wife Divya and his younger brother Riju remaining on the board.

The news came soon after Deloitte resigned as the statutory auditor of the education technology company—once India’s most highly valued startup at $22 billion.

Byju's, which counts China’s Tencent and US hedge fund Tiger Global among its investors, has been battling multiple issues for a while now—including delayed financials, allegations of mis-selling, valuation drops, steep losses, layoffs and a bitter legal dispute in the US over a $1.2 billion term loan. Its planned listing of Akash Educational Services, a physical tutor chain it bought for nearly $1 billion two years ago, is also shrouded in uncertainty.

If trouble has been brewing for so long why didn’t the board members act sooner?

“This is not a simple one,” says one early-stage investor on the condition of anonymity.

At the outset, the board members who have resigned are not executive directors. They are non-executive directors. “These are people from the investor community and investors typically are not supposed to run the company. Investors have a number of companies to manage so they cannot deep dive into everything themselves,” he says.

Also read: Aakash IPO: Is it a well-timed, smart move for Byju's?

In which case non-executive board members can take action basis two aspects: Rely on audit reports shared with them and regularly cross-checking the systems and processes.

First, on the audit reports: The fact that Byju’s has still not submitted its financial results for the year ended March 2022, which had been due in September, should have been cause for alarm. Results for the year ended March 2021 were also delayed by 18 months. The accounts revealed that Byju’s had losses of more than $560 million.

“If the accounts were not done and the audit report is not done for two years then I do blame the board. The board members should have raised a hue and cry about it. They should have got the auditors in the room, got a notice on the company—that is their job,” he says. “This is a glaring error. Board members are custodians, especially non-executive ones. They are there on behalf of shareholders, not on behalf of the company.”

Also read: The comeback is stronger than the setback: Byju's founder to employees

Second, on cross-checking systems and processes: Here the values of the founding team come into play. In the era of fast money, founders built out their companies at sky-high valuations, oftentimes allowing that value system to erode, says another investor, on condition of anonymity. “We bet on and invest in smart entrepreneurs. But smart entrepreneurs are also liable to becoming over-smart. If they want to wilfully fraud the company, no system will hold you back,” he says.

Despite the stink Byju’s managed to raise $250 million in convertible notes from New York-headquartered investment firm Davidson Kempner just last month. The nature of the funding capped Byju’s valuation at $22 billion.

Also read: Hoopla and Hubris: Why Indian startups are coming undone

“This is surprising to me. What kind of due diligence was done by the investors? I also question the diligence provider. So clearly there is more to it than meets the eye. Not all books are open to all investors,” says the investor first quoted. “Besides, why did Deloitte quit now and not a year ago? Everybody seems hand in glove.”