Why educators are on a warpath with Unacademy-owned PrepLadder

Meanwhile, five more educators allege that PrepLadder misled them into renewing their contracts and have now terminated their contracts, the people said, requesting anonymity.

The educators were told that as the edtech sector is going through a “tough phase,” their remunerations had to be reduced.

Moneycontrol had reported in September (give link) about how Relevel, a job-guarantee portal, also owned by Unacademy, had come under fire, with students complaining about unfulfilled promises.

PrepLadder contributed 16 percent to Unacademy’s operating revenue in FY22, according to the company’s regulatory filings with the Ministry of Corporate Affairs (MCA).

Who are these teachers on PrepLadder?

All teachers on PrepLadder’s platform are doctor-turned-educators, specialists in their respective fields, such as psychiatry, pathology, pharmacology, etc.

More importantly, they are famous within their circles and many students subscribe to PrepLadder because of them. It will be difficult for PrepLadder to find immediate replacements.

“All doctors who have refused to renew their contracts are very famous educators in their circles, and many students actually take PrepLadder’s courses by seeing these educators onboard,” said one of the persons quoted above, requesting anonymity.

“Already, PrepLadder has announced that a few teachers will not be on its platform from next year and the impact is seen in new bookings as sales of PrepLadder, in the first seven days of this month, are around 30 percent of what it was four months back,” the person added. Moneycontrol has seen the booking amount.

However, a person close to Unacademy said that the replacements have been announced and the new educators are receiving ‘a very positive’ response from the student community.

Moreover, in the first 10 days of November, since PrepLadder has officially announced the names of the educators who will not be associated with the company from April next year, its sales have fallen more than 40 percent over the same period last year, sources told Moneycontrol, which viewed a copy of the sales data.

The beginning

Founded in 2015 by Deepanshu Goyal, Sahil Goyal and Vitul Goyal, PrepLadder provides recorded content for medical students appearing for NEET PG exams (the exam one must take to get into MD/MS). There are 19 subjects and PrepLadder has 19 teachers, one for each subject.

Sources told Moneycontrol that PrepLadder has an exclusivity contract that prohibits the company from hiring other teachers, and the teachers from teaching on other platforms.

Sources also said that when PrepLadder started out in 2015-16, it struggled to get any traction. It was only in 2018-20, when the company managed to on-board doctor-educators, very famous in their circles, that it saw its revenue growing.

According to the company’s filings with the MCA, PrepLadder’s revenue grew from Rs 5.9 crore in FY18 (2017-18) to Rs 25.8 crore in FY19 (2018-19). The ‘famous’ educators were hired during the period.

In July 2020, Unacademy acquired PrepLadder for $50 million.

Licence fee and revenue-share

The teachers work on a contractual basis and they provide recorded videos to PrepLadder, which then sells it to students and a ‘licence fee’ is paid to these educators. The educators also get a share of revenue that PrepLadder generates from selling content.

The new contract, which was due for renewal in April 2023, removed the revenue-share clause and included a 30-75 percent cut in remuneration, sources said. Following this, the educators refused to renew the contract.

When the teachers sought the reason behind their reduced remuneration, PrepLadder cited the ‘difficult phase’ of edtech companies.

Educators allege deception

Five of the 19 educators, who are accusing PrepLadder of deceiving them into signing the contract, had offered PrepLadder an option to continue teaching at its platform, while opening an offline tuition centre of their own--Cerebellum Academy--to offset the impact of their reduced remuneration.

PrepLadder’s top executives and founders--Deepanshu Goyal and Sahil Goyal—agreed since they saw no conflict of interest as PrepLadder was online and the educator’s institute was going to be offline.

“The educators are very important to PrepLadder and PrepLadder is also important to them. So the parties agreed to a solution like this wherein both PrepLadder and the educators would be happy,” a person directly aware of the matter told Moneycontrol.

In the last two weeks of August, all five of them renewed their contracts, while also opening their offline tuition centre during the period.

The educators were guaranteed by Deepanshu Goyal and Sahil Goyal that they would not have to worry about competition from PrepLadder in the offline space. Moneycontrol has seen the messages and mails between the educators and Deepanshu and Sahil Goyal.

Sources said that the educators received a ‘great response’ from students within the first few days of the launch of Cerebellum Academy in Delhi.

Neuros brings in more trouble

Seeing the traction Cerebellum Academy was getting, Deepanshu also said that he would love to join Cerebellum Academy, which was denied by the educators.

“When the educators denied, Deepanshu said that he would be 'rooting' for our success and would want to acquire it later,” one of the sources quoted above said. A screenshot of the chat between the educator and Goyal was reviewed by Moneycontrol.

“When the educators got an assurance that Deepanshu or Sahil would not be having a problem with their offline coaching institute, they renewed their contract with PrepLadder and within 10 days of their renewal, PrepLadder announced the opening of Neuros. The educators were furious with PrepLadder’s move and sent a revocation notice for their new contracts starting April, which PrepLadder refused to accept,” the source added.

After this, the educators, who renewed their contracts for the next year, wanted to terminate them as they thought it was unfair of PrepLadder to immediately foray into the offline space after assuring them otherwise. So, the educators sent revocation notices to PrepLadder.

PrepLadder did not immediately respond to the revocation notices and so the educators stopped doing social media engagement activities for PrepLadder, sources said. The educators also told PrepLadder to respond to their revocation notices, post which they would start doing social media activities.

Monthly payments under dispute

PrepLadder, however, stopped the payments for the educators while not responding to their revocation notices and told the educators that since they stopped social media engagement activities, the company would hold on to their monthly payments, sources said.

"Last month’s payments have been disputed as we are awaiting a response to the notice for their lack of content contribution," a person close to Unacademy told Moneycontrol, requesting anonymity.

The person also claimed that the educators were aware of Unacademy’s plans to open Neuros and that Neuros has witnessed a 115 percent growth in registration within 13 days in one city.

“There are multiple caveats in a contract, including monthly deliverables and they stopped delivering that,” the person added.

However, social media engagement activities, while a part of the contract, are agreed between both the parties mutually and the educators get paid separately for these uploads.

“Since the educators generate two invoices, one for social media activities and another for annual content, they would have been okay with the company holding on to their social media engagement payments,” a source said.

“But here, PrepLadder stopped their entire payment, while also continuing to stream their content. This is illegal. The educators requested them several times to take down the main content, at least, but they haven’t done that,” the source added.

Sources also said that the payment the educators get for social media engagement activities is ‘nominal.’

Equity and cash component

Moreover, when PrepLadder had hired these educators, the company had promised them a percentage of equity and when Unacademy acquired PrepLadder in 2020, the educators were told that instead of equity, they would be given cash equivalent to their stake in PrepLadder.

About 50 percent was paid to these educators back then, while the remaining 50 percent was due to be paid in March 2023 as a special retention bonus.

However, with the educators sending revocation notices, Unacademy has threatened to not pay them the bonus.

Unacademy has also sent the educators a caveat notice and has threatened them to not talk about these allegations on social media. Caveat notice is a formal notice through which a person receives intimation before any legal actions are taken against them. Mails exchanged between PrepLadder and the educators were reviewed by Moneycontrol.

The educators are now planning to take legal action against PrepLadder as the company is streaming their content, while holding onto their payments, sources said. The educators have also hired a ‘very big law firm in Delhi,’ according to sources.

Mounting troubles for Unacademy

With PrepLadder’s revenue growth potentially taking a hit, one of Unacademy’s biggest acquisitions seems to be faltering at a time when the company’s core business is slowing with schools, colleges and physical tuition centres reopening.

Gaurav Munjal, co-founder and Chief Executive Officer of Unacademy, has been bullish on both PrepLadder and Relevel, and had claimed on Twitter that Relevel touched $12 million in ARR (annualised revenue run rate) while PrepLadder got a 20 percent market share.

Interestingly, Munjal had also said that the NEET PG students didn’t want to shift offline. Munjal has, however, deleted the tweet, with PrepLadder opening an offline institute.

Unacademy is looking to achieve company-level profitability by January 2023, after having undertaken over 1,000 layoffs since the start of the year, reducing its headcount to half.

“The test prep segment is slowing offline while doing well online.
Unacademy would need to invest a lot initially to gain market share, so it can’t think of cutting costs there. Its newer initiatives would drive growth for the company, but with things like these (Relevel and PrepLadder), it should be very careful. A lot hinges on how these initiatives grow,” an investor, who has invested in three edtech unicorns, said, requesting anonymity.