It is also a sign that more bitterness lies ahead. Luckily it is not a listed entity for the drama to have played out in the daily price-fluctuation of stock exchanges.

Byju's prompt rejection of the resolutions aimed at removing Raveendran from his CEO and Board roles is an indication of the deeply-entrenched resistance to shareholder feedback and in wanting control over the organisation. In a statement following the EGM, the company staunchly refuted the legitimacy of decisions made during what it describes as a "select shareholder" gathering.

While the outcome of the EGM awaits clearance from the Karnataka High Court on March 13 because the decision has been legally challenged by Raveendran, these delays only prolong the inevitable reckoning. The central question remains: Can Byju's navigate through the internal dissent and external scrutiny it currently faces, or is its downfall inevitable?

Corporate Governance Deficit

The drama at Byju's underscores significant corporate governance deficiencies and a lack of transparency prevalent in many startups that rush to exhilarating valuations, untenable without profitability growth or higher corporate governance standards.

Amidst the widespread discourse surrounding the Byju's saga, a glaring reality emerges – a significant erosion of trust stemming from evident deficiencies in corporate governance. Speculation abounds regarding potential government investigations, with the timing and outcomes of such inquiries remaining beyond anyone’s influence.

The recent upheaval culminating in the EGM serves as a poignant reminder of the diverse roles investors play in shaping corporate accountability, or even the lack of it. Notably, some of the investors leading the EGM were previously deeply entrenched within the company's Board of Directors – a circumstance that raises pertinent questions.

Their abrupt departure from Board positions coincided suspiciously with serious allegations and the potential threat of regulatory investigative scrutiny. The significant disparity between their past passivity and current activism highlights the interplay of self-interest, ethical responsibilities, and fiduciary obligations within corporate governance.

Yet, conspicuously absent during their tenure were any formal grievances or appeals to governmental or regulatory bodies for investigations about any wrongdoings in the entity. This prompts speculation: Was their silence driven by a fear of attracting unwanted scrutiny, or were their actions motivated by a desire to safeguard their investments and maintain inflated-valuations ?

Strained Relations

On Thursday, General Atlantic, Prosus, Sofina, and Peak XV, along with Tiger Global and Owl Ventures, filed a petition with the National Company Law Tribunal, contesting Byju’s US$200-million rights issue. Alleging suppression of investor rights and mismanagement, the petition aims to declare the founders, including Raveendran, unfit to lead.

These developments signal a further escalation in the already strained relationship between Byju’s and its investors, exacerbated by the announcement of the rights issue, which poses a significant threat to non-participating investors by potentially reducing their shareholding by 99 per cent.

Byju's, a trailblazer in online education, is also currently ensnared in a prolonged restructuring dispute with creditors subsequent to defaulting on a US$1.2 billion loan, leading to the bankruptcy of one of its units in the US.

In addition, the company is immersed in conflicts on various fronts: dissatisfied parents pursuing refunds for funds blocked on Byju's EdTech products, disgruntled investors, and employees encountering difficulties in receiving their dues. Also, it is confronted with a slew of allegations from regulatory bodies, although these should be treated with prudence until formally investigated.

In 2015, a visionary young engineer from Kerala, conceived an ambitious plan to revolutionise math and science education by taking it online. However, instead of solely focusing on education using technology, he built a substantial sales apparatus into his ed-tech venture.

With Bollywood superstar Shah Rukh Khan and soccer icon Lionel Messi recruited as brand ambassadors, and a multitude of representatives aggressively promoting courses to anyone downloading Byju’s –The Learning App, the company adopted an assertive marketing strategy. Empowered by substantial amounts of freely available venture capital, Byju's evolved into an acquisitions powerhouse, investing nearly US$3 billion globally during the surge in demand for remote learning solutions induced by the pandemic.

Surely one cannot blame the founder alone for such growth and what followed in due course. Investors, especially the lead capTable investors and those on the Board, urged Byju's to rapidly expand sales and consequently invested in higher valuations. Is there any financial reasoning or business valuation sense to justify a US$22 billion valuation?

But then, such is the snootiness of the private investing world, an albeit close-knit closed-door small cohort of investors in India, as much as abroad. When the going was good, there were no complaints or red flags raised. They treated the company as if it was the best thing that happened to the world after sliced-bread!

However, when this approach no longer aligned with their individual investor-objectives, did they promptly resign from the Board? This raises a fundamental question: what is the true cost of growth? Who is responsible for this financial mess, and trust deficit between the Founder and the Investors? Why should the employees and customers pay a heavy price for the greed and mismanagement by a few?

Erosion Of Trust

In the investing sector, trust serves as the universal currency, yet the founders of Byju's seem to have depleted this invaluable asset through their lack of transparency and opacity. This serves as a crucial lesson for private unlisted entities: investor confidence relies on robust governance practices.

While financial capital seeks out human capital and execution prowess, these attributes must be supported by effective governance frameworks. But the investors cannot be above board, unless their own behaviour is built with governance and ethical attributes. Simply sponsoring or writing a book on corporate governance cannot buy trust and belief in those subjects.

An educational enterprise should have paid closer attention to its culture and behaviour. As stakeholders demand increased oversight and call for change, Byju's faces a critical choice: either heed the urgent need for robust governance and transparency or risk facing oblivion in an environment growing less tolerant of corporate wrongdoing.

It is an urgent call for the Indian policymakers to treat corporate governance seriously, especially with respect to private unlisted entities that have infusion of large equity capital or global investors monies.

We cannot allow for the follies of individuals to derail the Indian entrepreneurial journey. A startup or entity failing for business model or market changes reasons is acceptable. Such is the nature of risk capital backing it. But India cannot afford to have a tag of allowing for mismanaged companies due to large capitals chasing them.

The message from recent high-profile Indian tech startups struggling, whether it's Paytm or Byju’s, is clear: Innovation without adherence to compliance and governance standards is unlikely to endure. It's a lesson this founder – a skilled educator himself – neglected to learn. Right now, the larger question begs an answer, is the founder in India to stand up and solve this crisis? Or is he the crisis, having left the shores and fighting these remotely?

(The author is a Mumbai-based policy researcher and corporate advisor)