Introduction
A quiet shift in global finance is beginning to shape the future of Indian startups, and it has arrived in the form of aggressive distressed-debt investors often referred to as vulture funds. The ongoing saga around Byju’s, its US Term Loan B (TLB), and foreign lenders such as Redwood Capital Management and Silver Point Capital is no longer merely a company dispute. It is a defining moment that raises one critical question:
Should India’s most valuable startups be vulnerable to technical-default plays engineered in foreign courts?
This PR document explains how these funds operate globally, why Byju Raveendran’s case matters, and the broader risks India must understand as it steps deeper into global capital markets.
How Vulture Funds Operate in Global Startups?
Distressed-debt investors, or vulture funds, specialise in acquiring the loans of struggling companies and countries at steep discounts. Their playbook is simple:
- Buy debt cheaply from original lenders who want out.
- Search for technical defaults, not financial failures.
- Accelerate repayment demands even if the company is operationally healthy.
- Litigate aggressively to seize control or force settlements that offer outsized returns.
These are not typical lenders. Traditional lenders want a company to recover and repay. Vulture funds want control of assets, preferably at a discount.
Redwood Capital Management and Silver Point Capital are prime names in America’s distressed-debt market. Their history includes involvement with:
- Evergrande (China) collapse, profiting from high-risk real-estate credit exposure.
- Sovereign defaults like Zambia and Argentina, where their loan-to-own tactics worsened national economic crises.
The Loan-to-Own Strategy
This model targets companies experiencing technical or procedural breaches rather than financial collapse. Examples include missing an audit deadline, delayed paperwork, administrative oversights, and guarantor signature gaps. Vulture funds then trigger acceleration clauses, demanding full repayment of billions at once.
How Did They Enter the Byju’s Story?
Byju’s took a TLB from global banks with a 5–7-year repayment horizon. After the 2022 funding winter, original lenders offloaded this debt in the secondary market. Redwood and Silver Point purchased it at a steep discount.
They were not the original lenders. They simply bought access to a high-value Indian asset in distress. And they appointed GLAS Trust Company, a UK-based trustee, to represent their interests and lead aggressive legal action.
Byju Raveendran, Redwood, and Silver Point: The New Playbook in India
The story intensifies when these foreign funds turn procedural gaps into a legal opportunity.
The Timeline
- Post-2022: Redwood and Silver Point acquire portions of the TLB through secondary trading.
- They become the dominant stakeholders in the debt, without ever contributing to the original loan.
- GLAS Trust Company becomes their agent and begins orchestrating a pressure campaign.
The Manufactured Default
Byju’s missed an audit filing deadline, and a guarantor’s signature on an internal document. These were technical breaches, not signs of insolvency, stated Byju in an interview, “Broke, but not broken”. Byju’s continued to serve 150+ million learners, had strong revenues, and held a peak valuation of $22 billion.
Yet GLAS and the funds moved swiftly to declare default, trigger acceleration, and demand immediate repayment of $1.2 billion. This mirrors the same strategy these funds have used in other global cases, identify a small breach, scale it into a major default, and take control.
Legal Escalation
- Delaware court filings began soon after.
- GLAS requested a complete takeover by pushing for Restructuring Professionals (RPs) to replace founder Byju Raveendran.
- The lenders attempted to reshape the company within months, despite the loan originally being long-term.
What happened to Evergrande, Argentina, and Zambia was now unfolding with an Indian edtech giant.
Allegations vs. Reality in the $533 Million Case
At the centre of the litigation lies a disputed movement of $533 million. Here is the breakdown, with context usually omitted in lender filings.
1. What Is Byju’s Alpha?
Byju’s Alpha was a special vehicle created by JP Morgan, part of the TLB architecture, for currency and jurisdiction compliance.
2. The Fund Flow, Step by Step
Funds moved from:
Byju’s Alpha → OCI Limited (UK) is a legitimate procurement partner → Revere Master SPV, part of a trade-finance arrangement → Byju’s Global Pte Ltd (Singapore), the parent entity managing international operations.
This is standard practice in global trade finance.
3. Founders’ Position
Byju Raveendran and Divya Gokulnath have categorically and unequivocally denied any misuse: “No portion of the $533M was used for personal benefit.” Full audit trails and bank statements show the funds were used for tablet procurement, marketing and advertisements, and operational expansion.
4. The Missing Documents Narrative
Founders claim GLAS and the vulture funds already possess full documentation, but strategically use vague language like “missing,” “unaccounted,” and “unexplained” to strengthen their litigation angle. Chapman’s declaration (cited by GLAS) has been described as “selective,” “speculative,” and “misleadingly incomplete.”
How Lenders Shape the Narrative: The Strategic Information Advantage?
In global distressed cases, the first mover controls the story. GLAS and the RPs had that advantage.
How They Shape Perception
- Aggressive filings: Written to influence both courts and media.
- Selective disclosures: Highlighting fund transfers but omitting corporate purpose.
- Timing tactics: Filing at moments that amplify public scrutiny.
- Information asymmetry: As lenders, they accessed full records long before founders could respond.
- Media framing: Early filings become “fact” before clarifications emerge.
Byju Raveendran faces a structural disadvantage; he responds after they file. This automatically positions his explanations as rebuttals, defences, and denials, rather than the primary truth.
The Broader Risk for Indian Startups
The outcome of this case is not just about one company.
1. If They Win, Every Unicorn Is Vulnerable
A single technical lapse could become grounds for foreign takeover attempts.
2. Chilling Effect on Foreign Debt
Founders may avoid global financing, limiting India’s innovation growth.
3. National Champion Risk
Byju turned learning for millions into something different. Its disruption impacts 150 + million learners, puts thousands of employees at a loss, and disrupts the stability of India as a reliable source of innovation.
4. Dangerous Precedent
Delaware courts deciding the fate of Indian enterprises creates long-term systemic risk.
5. Policy Implications
India may need versions of the UK’s anti-vulture fund act, Belgium’s anti-predatory lending act, and Jersey’s sovereign debt protections to safeguard its own startup ecosystem. This is not nationalism; it is pragmatic economic protection.
Conclusion
The Byju’s case marks a turning point in India’s relationship with global debt markets. It highlights an urgent reality. Foreign distressed-debt funds are not traditional lenders. They are strategic asset acquirers. If their playbook succeeds unchecked in India, the implications will be felt far beyond edtech across fintech, mobility, healthtech, SaaS, and every emerging unicorn.
As India builds global companies, it must also build global-grade safeguards. This is no longer about one founder or one loan. It is about ensuring that India’s innovation story cannot be rewritten by foreign entities looking for opportunity in temporary vulnerability.
