How upGrad’s co-founder Mayank Kumar raised one of India’s largest funding rounds this year amid edtech slowdown

UpGrad has raised a large round recently. How does the company plan to use the funds?

Our core business is profitable and does not require cash, so the funds are not for that. Broadly, there are two main objectives. One is, that there are certain new businesses that we have incubated within the context of upGrad, so we have ventured into (offering services to students wishing to) study abroad. We are looking at some job-linked programmes also, and we are looking at international expansion.

We are looking at establishing ourselves strongly in the US market. So some of these places where we were not present earlier, those places will definitely get funding.

The second one is going to be again looking at judiciously using the capital for some kind of an M&A (merger and acquisition) and ensuring that the right set of founders and partners come along with us to build the business out. So those would be the two broad use cases—the new businesses we’re venturing into and any M&A that we are contemplating for the future is where we would use the capital.

The round that the company raised recently also is one of India’s largest rounds of 2022 and at a time when funding to Indian startups, especially edtech companies, has slowed. How was it to raise the round? What were the conversations with investors like, were the conversations different from 2021?

It (fundraising) is never enjoyable, I can say that from the bottom of my heart, with absolute honesty, whether it is good times or bad times. I mean, you always want to be fully in control of your destiny and, therefore, fundraising is just one way of getting to the destiny. But even in good times, you will compromise on something.

I do believe good money is still chasing good companies. I have always firmly believed in that and I think it still holds true. But there are three-four things that I sensed were very different when we were looking at raising capital. One, it was not a conversation about growth at any cost. A lot of it was about growth at the right cost and the cost structure that you are building. People were not questioning about TAM (total addressable market) but mostly about when you will turn profitable, and how quickly will you turn profitable.

There was less conversation about unit economics also, it was rather like today are you profitable, how much cash are you spending on a daily basis. So now it is not as much as conjectures, but mostly on today’s as-is situation. So the narrative perhaps four-five quarters ago could have been, hey we are doing this, our unit economics will turn positive. Now the question was, is it positive today, are you generating cash or capital or profits from the system today?

Did you get the valuation you were seeking? Was there any mismatch between what investors were seeking to give you and what you were seeking?

There was no mismatch over that, but conversations definitely happened over the valuation. Valuation is not a benchmark that we chase at upGrad. But we were very clear about at what valuation we wanted people to come in.

There were question marks as to what justified the valuation, which of course happened. Now, we may not have faced the situation but I’ve heard multiple cases where many conversations have stalled because of valuation.

I guess founders have to be smart about it at this point in time. If you’re in need for the long run, then once in a while you have that sort of valuation conversation but have to continue building the business, and in the long run, you’ll see the results coming.

Given that investors are increasingly focusing more on profitability, how and by when do you see upGrad achieving profitability at a company level?

Capital coming in needs the right return on the capital employed. And so that’s something that we’re cautious about and, therefore, even when funding was available, in a very large quantum and easily available, we did not go out and spend it all because we valued money.

Even today, when the situations are looking slightly different, even when the colour of the ecosystem is changing, we still have the same approach. Our DNA was not growing at any cost, but growing at the right cost, and even today the approach remains the same.

But while our core business can be profitable, some of the new businesses will require capital, therefore there will be losses that will come in. But I think this year at an overall level upGrad will be profitable, unless we venture into a new line of business that will require some additional capital or we acquire a company that is loss-making.

But otherwise, the core business will turn profitable this year, FY23. We have multiple lines of business. We have working professionals, we have study abroad, and so on. WP (working professionals) is definitely profitable. Other lines are not. But most other businesses that have been there for over a year will turn profitable.

In a recent interview, chairman and co-founder Ronnie Screwvala talked about how edtech companies should focus less on advertising and reduce their cost of acquiring customers. How does upGrad look at advertising?

Advertising is one of the biggest reasons why educational companies scale or don’t scale, because acquiring customers is tough. So advertising and television advertising definitely helps companies when you have to create awareness for the brand and second, for the category, because what many of us are doing is not something we have grown up doing.

So if you’re doing some kind of concept creation, there will be some investment required to create the concept and, therefore, it definitely is relevant and useful because the way marketing has worked is that you take it to a certain level, you come up, you come back again, market and move it up, move it up. It’s a step ladder function in which the ecosystem sort of moves up.

Coming to our approach, we look at television ads as very core to our journey. We don’t rely on this but at some point, sometimes you want to pass on a concept, we will leverage television advertising. A lot of our focus has been largely around digital in our own proprietary channel. So this time around what we’re also noticing is that there’s enough efficiency that is possible, even in the proprietary channels.

How have you seen your revenues growing over the last two-three years, and how much do you expect your revenues to grow this year?

We have consistently got about 100 percent year-over-year from FY16-17 onwards, FY17-18 onwards. If you see, we have always seen 100 percent growth. Even this year we will see 100 percent-plus growth. From (FY)21 to (FY)22, it wasn’t 100 percent but 95 or 97 percent. And this year also ended up at about 100 percent.

UpGrad has also acquired a lot of companies this year. What are the strategies and synergies behind these acquisitions? Did the company go aggressively behind acquisitions this year, given that edtech valuations were dwindling?

Our approach is focused on a lifelong learning journey, which starts from post-K through 12 (post-kindergarten to 12th grade), let’s say from 18 to 55-60s (age group). And we look at two broad segments, college levels, and working professionals.

So if you look at our strategy of acquisition, our goal is to create a platform where the learner comes back to us again and again, asking for our courses.
Talking about synergies, I will not curtail the founders’ energy. It’s our focus is to give founders enough bandwidth to do what they want to do, not get them pulled into 20 percent synergies here, 30 percent synergies there. Because we believe that the founders who get the right environment will build a large business.

Right now, when we look at M&A, our focus is clearly on business, and in business that is to build, not in terms of capability, or to acqui-hire and therefore get a new set of capabilities, whether you hire a new tech team and new content team—that’s not the approach that we are taking, the approach is that the business that worked in a very different environment can under the upGrad umbrella really be turbocharged.

There are some larger-funded players in the space like Byju’s-owned Great Learning and Eruditus. How do you see competition in the space?

The names that you mentioned have built some really good products and target very unique sectors. Today, something I see is that some of our competitors have one foot in India and abroad. So the focus on India is not fully there, and that has allowed us to, I mean, I can very clearly say that just in terms of Indian revenue, we are at least twice, three times bigger than the next competitor’s India revenue.

I do see that there is competition. The good part of the competition is all of us evolving towards building the market and the not-so-good part of the competition is that amongst all of us, if there’s one ecosystem where we all are giving in—the marketing ecosystem. I think if I can invest more in the products and make sure that the outcomes for the learners are better, all of us will benefit.

What according to you are some of the interesting themes emerging in the edtech sector? What are the areas that potential entrepreneurs can target and solve?

If you have outcomes, you will get repeats; if you have outcomes, you will get referrals. If you have outcomes, then the cost of marketing will come down, if you have outcomes the cost of sales will come down.

If I did not have those thousands of positive stories, it would be very difficult for me to maintain customer acquisition cost below a certain threshold. So I think outcomes will be something where there will be focus.

We will see interesting models coming in, end-to-end, owning the full education, not just supplementary education, not just tuition test prep. That shift, you will see happening.

India would also see the emergence of good B2B models.

What are upGrad’s plans for going public? Are there certain milestones before you think of going for an initial public offering (IPO)?

It (IPO) is definitely in our plans. When you need to go public there are two or three things that are very important. One of the most important things is predictability and that needs to be built out. It’s another 18-30 months’ journey for us and that’s what we’re working towards.

It all depends upon how the situation changes. But definitely, going public is 100 percent within our sight, in our mind.

Profitability is one of the criteria. Again, I would not say perhaps the most important criterion, but certainly an important factor. More than that, I think the predictability of business is the most important.

As you know, when you go public, every time you get asked one question—you’re doing this in this quarter, what would the next quarter look like? You call it guidance, right, and for that, you need to build a business plan which is predictable, and that will only happen if the product that we build is predictable.

What would a three to four-year plan for upGrad look like? What do you want to achieve by the end of 2026?

Well, we’ll see, let’s say by 2026, getting close to $2 billion in revenues. Second, the true case for lifelong learning to come up, $2 billion is not happening if a lifelong learning thesis is not laid out.

I think one of the biggest values for me, as I said, I genuinely would like to be a product for the 60-70 million-plus working population in India, and 200-300 million globally. We would like to be lifelong learning and career partner. You may have a telecom partner, you may have an insurance partner—we want to be your career partner to support you in your journey.