Winter is here, we must focus on profitability at all costs, Unacademy CEO Gaurav Munjal tells employees

Unacademy CEO Gaurav Munjal.

SoftBank-backed edtech unicorn Unacademy's founder and chief executive officer Gaurav Munjal has told employees to learn to work under constraints, warning a funding winter was around the corner.

“We are looking at a time where funding will dry up for at least 12-18 months. Some people are predicting that this might last 24 months,” he said in a letter to employees on May 26. “This is a test for all of us. We must learn to work under constraint.”

The letter, which was reviewed by Moneycontrol, comes more than a month after Unacademy laid off around 600 employees, accounting for 10 percent of its workforce.

“We have a different iconic goal this time. The goal is of profitability. The goal is of generating FCF (free cash flow),” he added.

His warning of a funding winter come at a time when private equity (PE) and venture capital (VC) firms are going slow on investments, especially in high growth but non-profitable technology companies.

Munjal told the employees as well as the management that it was time to adapt and focus on profitability at all costs. “We must survive the winter,” he said.

His comments are in contrast to what upGrad chairperson and co-founder Ronnie Screwvala told Moneycontrol in Davos on May 24. There is no funding freeze and there would always be capital for “any rock-solid business”, he said.

But, as reported by Moneycontrol on May 26, Screwvala-backed Lido Learning is yet to pay January salaries to over 1,200 employees after they were asked to resign abruptly in the first week of February, citing a funding crunch.

Munjal suggested steps like cutting down on brand marketing and focusing on organic growth channels instead to become profitable.

His aim was to make every test prep category profitable in the next three months and Unacademy Centres by 2022-23 (FY23).

“All incentives for educators that are not linked to revenue have been completely removed or are in the process of getting completely removed,” he said.

“Travel only if it is absolutely needed. Meetings that save travel cost and that can happen on Zoom, should happen on Zoom.”

Unacademy was never resource-constrained, he said. “We always raised more money than what was needed. This allowed us to continuously experiment and grow our platform without worrying about when we will run out of money,” he added.

Also Read: Layoffs, shutdowns, funding crunch: The Great Indian Startup Party is over

Others are feeling the chill too

In a letter to its portfolio founders on May 25, Sequoia Capital, one of the world’s largest VC firms, said the era of being rewarded for hypergrowth at any costs is quickly coming to an end, with investors shifting towards companies who can demonstrate current profitability.

The VC also advised founders to cut costs as capital is becoming expensive leading to investors de-prioritising and paying up less for growth.

Also read: Founders have to take tough calls in difficult times: Vedantu CEO Vamsi Krishna

In a similar letter last week, marquee Silicon Valley startup incubator Y Combinator warned its portfolio companies about the worsening macroeconomic situation and advised startup founders to take money from investors even on terms of their previous rounds, if available.

VC fund Orios Venture Partners advised its portfolio startups to become conservative in hiring, saying capital will be constrained for the startup ecosystem amid bearish mood of investors.

The edtech sector in India is seeing a drop in demand, as schools, colleges, and tuition centres open up.

Earlier this month, edtech unicorn Vedantu laid off around 624 employees, or more than 10 percent of its workforce.