Vedantu is seeking external investors for a secondary funding round that would enable its Chinese shareholders to exit ahead of a possible public listing in two years.
The secondary funding round from external investors will come in addition to a primary infusion of about $12 million, with existing backers committing further capital, people familiar with the matter told YourStory.
Since the internal round, expected to close over the next two quarters, is structured through convertible notes that do not assign a valuation, the external round will help the company establish a price for itself—likely at a level well below its earlier $1 billion valuation.
“The internal round is a convertible round, and so there’s no price to it. Also, the existing investors may not participate in the secondary round. So the company is looking for external investors who will price the round and give an exit to the Chinese investors,” one of the people quoted above said.
“In the run-up to the IPO, the company wants to clean up its cap table and not have any Chinese investors aboard,” the person added.
While Vedantu has begun scouting external investors, the company is in no hurry to rejig its cap table as it has sufficient time to do so before the targeted IPO timeline, a second person said.
According to data portal Tracxn, Vedantu is backed by Chinese edtech firm TAL Education Group, Legend Capital, as well as a few China-based angel investors that participated in the company’s seed round.
Vedantu did not respond to YourStory’s request for comment. Newspaper Mint had earlier reported that Vedantu is seeking a new fundraise of around $10-15 million from existing investors through convertible notes.
.thumbnailWrapper{
width:6.62rem !important;
}
.alsoReadTitleImage{
min-width: 81px !important;
min-height: 81px !important;
}
.alsoReadMainTitleText{
font-size: 14px !important;
line-height: 20px !important;
}
.alsoReadHeadText{
font-size: 24px !important;
line-height: 20px !important;
}
}
A convertible note is a short-term loan given to a startup by an investor, which later turns into company shares instead of being repaid in cash. This conversion typically happens during a future funding round, IPO, or acquisition—called a “conversion event”.
The investor gets shares at a discounted rate compared to new investors. If no conversion event happens, it behaves like regular debt with interest and a maturity date. To protect investors from being diluted if the company’s valuation suddenly spikes, a cap is usually set on the maximum share price. Because of this flexibility and downside protection, even late-stage startups with high valuations are now choosing to raise money using convertible notes.
Such rounds have become more popular lately as investors are keen to delay putting valuation tags on companies amid the prolonged funding winter. The CapTable had done a detailed piece on the advantages and disadvantages of convertible notes in 2023.
Moreover, according to a Mint report, besides Vedantu, companies like Udaan, and Pocket FM were also looking to give an exit to their Chinese backers amid growing geopolitical uncertainty. Lately, Paytm, Eternal, MakeMyTrip and some other Indian companies have also seen Chinese investors selling stakes.
Edited by Jyoti Narayan
