Byju's governance structure did not evolve sufficiently, regularly disregarded advice: Prosus

Trouble mounted for Byju's on Tuesday as Prosus NV, an investor in the edtech startup, asserted that the company's reporting and governance structure did not evolve sufficiently for an entity of this scale and it ''regularly disregarded advice'' by the Dutch-listed firm.

Prosus, which this year slashed the valuation of Byju's to USD 5.1 billion from USD 22 billion last year, said the decision for its director to step down from Byju's board last month was mainly because he was ''unable to fulfil his fiduciary duty to serve the long-term interests of the Company and its stakeholders''.

Byju's spokesperson said: ''We have noted the observations of our valued investors. We have updated our shareholders about definitive steps taken to improve corporate governance and financial reporting''.

In a statement, Prosus said Byju's grew considerably since its first investment in 2018.

''But, over time, its reporting and governance structures did not evolve sufficiently for a company of that scale,'' it said.

''Despite repeated efforts from our director, executive leadership at Byju's regularly disregarded advice and recommendations relating to strategic, operational, legal and corporate governance matters,'' it said.

It went on to state that the decision for its director to step down from Byju's board was taken after ''it became clear that he was unable to fulfil his fiduciary duty to serve the long-term interests of the Company and its stakeholders''.

''As a shareholder, Prosus will continue to assert its rights, collaborating with other shareholders and government authorities to safeguard the long-term interests of the Company and its stakeholders,'' the statement added.

Byju's, it said, sits at the intersection of India and education, two very important and strategic areas of investment for Prosus.

''Although we no longer have a representative serving on the Board of the company, we continue to believe in the potential of Byju's and its role in revolutionising access to quality education in India and around the world,'' it said.

In recent months, the edtech major has been grappling with multiple issues, including concerns over its corporate governance practices.

The edtech giant, however, got a breather on Monday after the steering committee of lenders announced they have agreed to amend a USD 1.2 billion term loan with Byju's by August 3, 2023.

Successful execution of the amendment would ''immediately'' solve the loan’s acceleration and end all open litigation while avoiding further enforcement actions, they said in a statement.

The edtech giant has initiated a slew of measures, such as the formation of an advisory council, which appointed ex-SBI Managing Director Rajnish Kumar and one of their early investors and IT industry stalwart and Infosys former CFO TV Mohandas Pai.

Investors G V Ravishankar of Sequoia Capital (now Peak XV Partners), Vivian Wu of Chan Zuckerberg Initiative and Russell Dreisenstock of Prosus had resigned from Byju's board of directors, confirming the development in late June. Around the same time, Deloitte Haskins and Sells resigned as the edtech company's auditor.

Also, the crisis-ridden startup has cut down on its office spaces in Bengaluru in a bid to cut costs and ramp up liquidity.

Byju's vacated one of the three offices in Bengaluru. Also, it has vacated three out of the six floors it occupied at its main corporate office.

Abhishek Malhotra, Managing Partner of TMT Law Practice, said that Prosus' statement on Byju’s should serve as a ''forewarning'' to the startup sector to bring their corporate governance and regulatory compliance processes to order with global standards.

''While Indian start-ups have benefited greatly from the investment volumes from overseas venture funds, it is vital that they scale up their reporting and governance structures along with their operations, to retain investor and consumer confidence in their operations,'' Malhotra said.

According to Malhotra, startups need to take a step back, evaluate their business readiness positions, and pivot to profitable business models, where applicable, to reduce reliance on external investments and generate capital for the long-term success of the company.