Layoffs, restructuring, slowdown: India’s edtech firms are struggling post-pandemic

To be sure, Singh is not the only one. Moneycontrol spoke to at least five other educators teaching at various edtech startups who have gone back to offline physical tuition centres with the COVID-19 situation normalising.

Singh said she would also look to enroll both her kids in an offline tuition centre for the next academic year, which starts later this month.

“Offline tuition centres are just so much better. My son is 11 and he is in front of his laptop 24/7 and I don’t know what he watches, what he reads, what he does. It’s just better for him to go to a physical centre to study,” said Singh.

“Technology is good and it’s good that it has evolved so much. Let the tuition centers use technology to good effect, but I am a big supporter of classroom teaching and I feel that (classroom teaching) will be the case going forward and so you see all these new companies Byju’s and all are going back to opening offline centres,” Singh added.

Singh’s comments were corroborated by many parents Moneycontrol spoke to, as most were willing to enroll their kids with traditional coaching centres with the COVID-19 situation normalising.

Many upskilling learners, and college students, too, are keen on visiting universities and campuses physically after almost two years.

For instance, Ranjana Giri, an 18-year-old student from Patna, enrolled into Byju's coaching classes in 2020 when the pandemic hit the city and schools were shut down overnight.

She said, "It's been two years since I started studying on Byju's platform and I can say that it was a total waste of my money. The method of teaching was incomprehensible to me. All I remember are animations and audio."

Due to the speed and level of explanation in the videos, Giri said she was not able to understand the subjects well. She is now preparing for the medical entrance examination, NEET. Giri plans to move to Kota, Rajasthan, and get enrolled in a NEET course at Allen, a premier coaching institute.

She said offline classes offer a competitive atmosphere and motivate one to achieve their goals, something online coaching classes, in her opinion, don't offer.

She added, "I plan to enroll at Allen because that's where all my family members, who became doctors, studied."

Nutgraf

This inclination towards traditional physical tuition centres, schools, and colleges has started hurting edtech companies with the demand for remote learning and technology-based education services dropping.

The slowing demand for technology-based education services, coupled with the much-talked-about funding winter, has had a domino effect on India's thriving edtech companies, forcing them to lay off employees, go slow on expansion, cut down excess spends and explore newer revenue streams. Some edtech companies have even shut operations.

Layoffs and forced resignations

The number of employees laid off by edtech companies since the start of this year has risen almost every month. According to data compiled by Moneycontrol, edtech companies have laid off close to 3,600 employees in 2022.

It all started with Lido Learning asking over 1,200 employees to resign over a virtual townhall meeting. Lido Learning’s founder Sahil Sheth told employees in the meeting that the company was in a ‘financial crisis.’ Over 900 employees of the 1,200 were from the sales and marketing team.

Employees were asked to resign immediately and Sheth told them that they would receive their salaries in less than three months as Lido would sell its assets to repay all the dues of the company, including compensation to employees. However, Lido Learning’s employees are yet to get their salaries.

Disclaimer: Around 800 WhiteHat Jr employees resigned over forced return to work from office

Just a month later, SoftBank-backed unicorn Unacademy laid off about 100 employees, including educators, and people from the sales and marketing team from its PrepLadder team in a ‘restructuring’ exercise. Unacademy laid off another 600 employees in April, accounting for about 10 percent of its workforce in a cost-cutting exercise.

Unacademy was followed by Tiger Global-backed edtech unicorn Vedantu, which sacked 624 employees or over 10 percent of its workforce, including hundreds of educators, in May. Vedantu’s co-founder and chief executive officer Vamsi Krishna wrote in a blog that the company expects a scarcity of funds in the coming quarters amid a slowdown in global financial markets.

“As a company policy, we don’t terminate services of academic teachers in the middle of the academic year,” Krishna told Moneycontrol.

“We have two kinds of classes — small class and large class. In a large class, there is a master teacher and there are class teachers, in a small class, there’s only one teacher. We consciously took a decision to keep only a large class for grades six to eight, which led to class teachers not being required and master teachers being required. So, the surplus class teachers were asked to go,” Krishna added, explaining the company’s rationale for laying off hundreds of educators.

A week later, about 800 employees from Byju’s-owned Whitehat Junior, too, resigned as they were asked to move to different cities immediately. Employees complained that Whitehat Junior was looking to cut costs and hence had asked employees to relocate without any prior intimation, which led to many resigning.

Another edtech company Frontrow, which counts Unacademy’s founder Gaurav Munjal as its backer, laid off about 150 employees, citing a funding crunch. About 150 more resigned voluntarily looking at the mass layoffs, Moneycontrol had reported. Frontrow was followed by Alpha Wave-backed Udayy and another SoftBank-backed unicorn Eruditus, which sacked over 100 and 80 employees respectively, earlier this week.

Company shutdowns and streamlining of verticals

Udayy’s co-founder Saumya Yadav said that the company will be shutting its operations and will return the remaining capital of about $8.5 million to its investors. Yadav told Moneycontrol that the K-12 segment (kindergarten to class 12), in which Udayy operates, has become challenging with schools reopening, which led the founders to take a call on shutting down the company’s operations.

“K-12 is definitely hard right now because students are transitioning from online to back to school. The priorities and time that they have is changing, money that they want to spend is changing. For companies started during the pandemic, like ours, it is a test of their lifetime,” Yadav told Moneycontrol.

Yadav said the founders also explored the option of selling the business but the plan didn’t work out as many edtech companies are streamlining their operations amid the funding winter.

“We definitely explored the option (to sell our business) and I had conversations. But it looks like, because K-12 across the board is suffering, people are either taking a step back or not expanding. None of the conversations materialised,” Yadav said.

Udayy is not the only edtech startup to shut shop. Lido Learning, too, had informed employees in March, that the company was looking to wind down operations. As with Udayy, Lido Learning’s Sheth was also exploring the option to sell the operations but the deal has not materialised yet.

Lido Learning, which counts Paytm’s Vijay Shekhar Sharma, upGrad’s Ronnie Screwvala, Shark Tank judge and Shaadi.com founder Anupam Mittal, among others, as its backers, was exploring a slump sale of its operations to larger rivals and a conglomerate, among others.

While smaller edtech companies like Udayy and Lido Learning have struggled to survive, well-funded edtech unicorns are shutting down non-core verticals and are streamlining other operations.

For instance, Unacademy, which made forays into the K-12 (kindergarten to class 12) segment, shut down the vertical in months.

“The areas of edtech that are struggling are those where the offerings were undifferentiated and the competition was too great. Obviously a few Indian K-12 consumer startups have shut down. Vedantu did layoffs and Unacademy closed that whole business line,” said Mujtaba Wani, investor at GSV Ventures.

Eruditus, meanwhile, said it will shut down some of its non-core businesses this year.

“There are certain projects where we will say, look this may not be a core project today and so let us shut it down,” said Ashwin Damera, co-founder and chief executive officer, Eruditus, in a telephonic interaction.
“We were creating an app-based product, with a price point of $99, which we identified as a non-core product. We are not going to invest in it any further, it will be as it is, but we will revisit it at a later point in time. So, we are also looking very closely at core and non-core and trying to figure out what our fate is,” Damera added.

Profitability over growth

Edtech unicorns’ move to shut down non-core verticals comes at a time when many in the sector are prioritising profitability over growth. Recently, in a letter to employees, Unacademy’s Munjal said that the company should focus on ‘profitability at all costs.’

Munjal also told employees to ‘learn to work under constraint,’ and said that the company must take steps like cutting down on brand marketing and focus on organic growth channels to become profitable.

Damera, meanwhile, said that Eruditus will go slow on expansion this year, particularly in terms of geographies. He also said that the company will hire only about 100-150 employees this year, against the 1,300 it hired in 2021.

“We are opening an office in Sao Paulo, and a couple of more geographies. So what we will do this year is go slow on the expansion and concentrate more on the core India business, which is profitable. We would look to grow that more. That doesn’t mean I am not going to expand to Brazil, it’s just that it will require a lot of burn to set up a new office, build a tech stack, hire local language employees etc., so instead, I will prioritize the core profitable business,” Damera said.

Damera also said that the slowdown will lead to consolidation in the overall edtech space and many well-funded companies, including Eruditus, will look for acquisitions this year.

Acquisitions, offline forays and newer revenue streams

Earlier this year, Eruditus had earmarked $1 billion for mergers and acquisitions for 2022. The company also raised $350 million in overseas acquisition debt financing from CPPIB (Canada Pension Plan Investment Board).

Similarly, Byju’s has raised over $850 million in overseas acquisition financing debt, and the company is looking at acquiring companies globally, especially in the US. Recently, in an interview with The Economic Times, founder Byju Raveendran said that the company will look for ‘multi-billion’ dollar acquisitions in the US.

“As some edtech unicorns are sitting on huge acquisitions, they have to shore up their revenue, especially at a time when everyone is talking about a fall in demand for edtechs and everything,” said an investment banker, requesting anonymity.

“Most will do acquisitions for shoring up revenues, even if they deny it saying it was for tech capabilities etc. Not just acquisitions, edtech companies will aggressively look for newer revenue streams this year by offering different kinds of packages, technology platforms or by going offline,” the banker added.

The banker has a point. Over the last few months, companies like Vedantu have differentiated their products to attract students and parents. The Tiger Global-backed company launched an immersive learning platform in March by leveraging its artificial intelligence and machine learning capabilities to differentiate its product from competitors like Byju’s. Vedantu also launched an ultra-low-fee package for students to lure parents.

Byju’s, meanwhile, in February, announced that it was opening offline tuition centres with an investment of $200 million. The company said it expects to enroll one million students into the offline programme over the next 24 months. In May, Unacademy followed suit and opened offline tuition centres. Unacademy had introduced an ‘experience center’ in March before a full-fledged entry into the offline segment.

The experience store was opened to showcase its tech capabilities and the company was expecting to attract learners through it, a person in the know said.

“The strategy employed by companies like Byju’s and Unacademy to add offline is simply a way to add and diversify revenue streams. They are trying to expand their offerings so that they can attract more students,” said Wani of GSV Ventures.

Cloud over listing plans

The slowdown for the edtech sector comes at a time when three of the country’s six edtech unicorns are looking at an initial public offering (IPO) in the next 18-24 months. Unacademy’s Munjal had recently said that the company plans to go public in the next two years, while Vedantu’s Krishna had said that the company may go for a public listing in18-24 months.

Byju’s, meanwhile, has been exploring an overseas listing in the US. The Blackrock-backed company may also go for a SPAC (special purpose acquisition vehicle) and is reportedly targeting a valuation of more than $40 billion. The company is currently valued at $22 billion. Recently, Byju’s’ Raveendran had said that the company may get listed in 9-12 months.

The slowdown in funding, drop in valuations and blip in demand for edtech solutions may hit the listing plans of the companies. To be sure, these companies have raised millions of dollars over the last two years at multi-billion-dollar valuations.

Bucking the trend

While the majority of edtech companies have been hit by the slowdown, a few seem to have bucked the trend. International Finance Corporation-backed upGrad’s chairman Ronnie Screwvala said the company plans to hire 3,000 people in the next three months and said it is close to securing fresh funding.

Screwvala also said there are a lot of opportunities that the education sector still offers in a country like India and blamed the present set of problems on "halos" created by select private equity funds that backed young entrepreneurs who went on to become poster boys.

upGrad is not the only upskilling edtech company planning an expansion this year. Tiger Global-backed Scaler will also be investing $50 million for mergers and acquisitions this year as the company sees a good consolidation opportunity due to the recent drop in valuations of tech companies.

The company’s co-founder Abhimanyu Saxena, in an interview with Moneycontrol, said that it will also invest in marketing and other growth initiatives this year.

Another bootstrapped edtech company, PhysicsWallah, which is planning to raise $100 million at unicorn valuation this year, is also expanding robustly. The company’s founder and chief executive Alakh Pandey, in a recent interaction with Moneycontrol, said that the company will grow aggressively in the segments that it does not have a larger presence in yet. Pandey also said that PhysicsWallah is hiring 150 people every month for various roles.

As the edtech sector gets a reality check, investors believe only startups with strong unit economics in the space will survive. Moreover, late-stage startups may find it more difficult to raise funds as they are already sitting on lofty valuations.

“Late-stage investing can be challenging in this environment because many companies previously raised funding at valuations that were very high relative to their revenues. Underwriting compelling returns can be tough,” said Wani of GSV Ventures.

“We are continuing to invest, especially in early-stage companies' seed or series A,” Wani added.