Tiger Global-backed edtech soonicorn Scaler will invest $50 million in mergers and acquisitions (M&As) in 2022-23 (FY23) as the company sees a consolidation opportunity amid a slowdown in funding and a drop in valuations of edtech companies.
“The funding slowdown and the correction in valuation of edtech companies has provided a very good opportunity to companies like ours to try and look at acquisitions,” said Abhimanyu Saxena, co-founder, Scaler, in interaction with Moneycontrol.
“I think it’s safe to say that the edtech sector is headed towards consolidation this year and thus we have been proactively looking at acquisitions. There are some companies, may be at early stages, who are finding it hard to raise money in the current situation and we have had conversations with many such,” Saxena added.
Strategy behind acquisitions
Saxena said that Scaler’s strategy behind its potential acquisitions will be largely revolving around acquiring and distribution of its courses. He said Scaler will not acquire companies just to shore up its revenue or to enter newer segments.
This is a shift from the acquisition strategies adopted by other edtech companies, including unicorns like Unacademy, Byju’s, Eruditus and upGrad, which have been acquiring firms aggressively over the last two years to diversify their offerings and to make forays into newer verticals.
“Acquisitions usually happen for revenue or for entering newer segments. For us, its neither of the two. We have always looked at acquisitions to strengthen our team and for better distribution of our courses, along with the tech capabilities that follow,” Saxena said.
In 2021, Scaler acquired Coding Minutes, an e-learning platform that offers on demand programming skills including programming languages, data structures and algorithms, competitive programming, machine learning and full-stack web development for $1 million.
In March this year, the company acquired Appliedroots for $50 million, which provides artificial intelligence and machine learning courses, just a month after it raised $55 million as a part of its Series B funding round from Lightrock, Sequoia Capital India, and Tiger Global Management.
Saxena said both the companies have helped Scaler to enhance its tech capabilities, to strengthen its team and to reach more people.
Other expansion plans
Saxena also said that Scaler will not venture into newer verticals anytime soon as it is already catering a multi-billion dollar market--technology upskilling.
“We have always been very focused on specific things. We are only catering to tech (upskilling) and even in terms of geographies, we strongly feel India and the US are the two deepest economies for technology. The number of software engineers that already exist here is massive. Our estimates suggest in India itself, our revenue can go up to $300-$400 million and the US offers a similar opportunity. So before venturing into newer segments, as we are already getting almost 10X to the second player, we will try to go deeper,” Saxena said.
“In terms of revenue, purely in India, Scaler can become a $2-$3 billion company,” Saxena added.
Saxena further added that Scaler is also investing in digital campaigns to build awareness about upskilling and to make ‘skill-based learning and hiring the new norm.’ Scaler has also earmarked Rs 100 crore for marketing for 2022, Saxena said, adding that it will focuses on curated content with premier OTT (over the top) players and YouTube creator networks.
Scaler said it is also looking to launch upskilling programs that cater to underrepresented communities like LGBTQ+ and persons with disabilities.
Scaler bucks the larger trend
Scaler’s expansion plans come at a time when the edtech sector in India is witnessing a significant slowdown amid a drop in demand for technology-based education solutions, thanks to schools, colleges and physical tuition centers reopening.
Moreover, funding to the overall startup ecosystem in India is drying up amid a slowdown in global financial markets, compelling firms to lay off employees, shut non-core verticals and rationalise advertising and marketing spends.
The funding winter, however, seems to have hit edtech startups the most, who had witnessed hypergrowth over the last two years. Edtech firms have laid off over 3,500 employees since the start of 2022. Saxena, however, said that Scaler has not laid off any employees yet and claimed that the company has an attrition rate of as much as 4 percent over the last two years. Saxena, however, said that the company will hire judiciously over the coming months. Scaler currently has about 1,500 employees, including instructors or educators.
Profitability attains significance
Many edtech companies are also prioritising profitability over growth and expansion as the funding winter is expected to last for at least 18-24 months.
For instance, last week, in a letter to employees, Gaurav Munjal, co-founder and Chief Executive Officer of Unacademy said that the company must focus on profitability at all costs. Saxena, however, said that the company is profitable batch-wise and can achieve company-level profitability ‘at its will.’
“We can achieve profitability any time, it is in our control. I will just have to tell a few people to cut down extra burn, but as of now I don’t think that’s required,” Saxena said, adding that the company has no near-term plans for an initial public offering (IPO).
To be sure, Scaler had reported a consolidated net loss of Rs 35.1 crore for 2020-21 (FY21) on a revenue of Rs 20.8 crore, according to its filings with the Ministry of Corporate Affairs. The company’s net loss widened almost five times from 2019-20 (FY20), even as its revenue rose nearly 37 percent during the period.
More about the company
Scaler, an online tech education platform launched in 2019 by InterviewBit Technologies, offers a structured program for upskilling technology capabilities of learners. The company was last valued at $710 million in February, making it a soonicorn or a company valued above $500 million but under $1 billion.
Saxena claimed that Scaler has enrolled over 16,000 learners on its platform since 2019. Scaler’s courses, which on an average have a duration of nine months, help learners in getting jobs at over 600 global technology companies including Amazon, Google, Microsoft, Facebook, Netflix, and Twitter, among others, Saxena claimed.
Scaler recently launched operations in the US and Saxena claimed the US business to have an annualized revenue runrate (ARR) of $10 million. For the India business, Saxena said the company has an ARR of $75-80 million for 2022-23 (FY23).In India, Scaler offers two courses--Scaler Academy and Scaler Data Science and Machine Learning--and are priced at Rs 2.99 lakhs, while in the US, the company offers Scaler Academy, which is priced at $10,000. Saxena said about 6,000 learners have completed their courses to date and on an average, they got a 126 percent hike in their salaries, with a placement rate of 94 percent