Is Byju’s really worth over $10 billion, what is its true worth and other key questions answered

Online learning company Byju’s became India’s second most valued startup in June when US-based firm BOND invested an undisclosed amount. The nine-year-old company, named after founder Byju Ravvendran, was valued at more than $10 billion with the latest investment.

But simply estimating Byju’s valuation at a headline-grabbing figure can be misleading, and the contours of this deal needs to be understood to arrive at its true worth. Here are some questions and answers to understand the actual valuation of the company, which offers live classes and instructional videos.

Let’s break it down. While BOND did invest in Byju at a valuation of $10.5 billion, this was not the valuation for the whole round. For late-stage startups, fundraising has a primary component in which it issues fresh shares, and a secondary component that has existing investors selling their shares. According to people familiar with BOND’s investment, the American company is also acquiring shares from existing investors at a valuation of $6-6.5 billion.

Entrackr reported on July 27 that BOND invested $23 million at the expected valuation of $10 billion. However, BOND is possibly investing more money, as secondaries, although it has not filed for them with the regulator yet.

Byju’s did not respond to an email seeking comment.

In the case of privately held internet companies, their valuations change rapidly as they grow fast and raise capital frequently. Shares of new investors who come in also have more rights. Two good examples are the higher liquidation preference -- who gets money first if the company winds up -- and anti-dilution rights, which prevents shares from being diluted past a threshold. Old shares may even include shares of early employees (ESOPs) and first investors, whose shares have less rights today and so are sold at a lower valuation.

According to a valuation expert, 25 percent is generally the difference between primary and secondary share valuation in a round. “Generally, secondaries in startups happen at a 20-25 percent discount. A discount more than that is highly unusual,” said Santosh N, Managing Director, Valuations at Duff and Phelps, an advisory firm.

The fair, or ‘real’, valuation of any company would be the aggregate value of all the shares. That is, if there are shares at multiple price points, you average them out. According to people familiar with the operations of Byju’s, the company was offering investors secondary shares at a valuation of $5 billion until April. That valuation has since risen to about $6 billion. The blended valuation, or average of all primaries and secondaries, is about $7.5 billion, people familiar with the matter said.