Edtechs focus on cutting monthly spends as demand, funding fall

India’s top education technology startups are slashing their monthly burn as they fight to survive and become profitable, amidst falling demand for online learning and a tough funding environment.

While many edtech unicorns and smaller startups have already undertaken mass layoffs to reduce employee costs, a major cost centre, they are also exploring ways to rationalise their advertising and marketing spends, with revenue growth slowing and external funding drying up.

“While we are working on solutions to boost demand, we have discovered a lot of efficiencies on the advertising and marketing front. We have discovered that some spends never actually added customers but added to our CACs (customer acquisition costs) and so we have reduced that. I think we should be getting leaner companies going forward, which is healthy for the ecosystem,” said a founder of an edtech unicorn, requesting anonymity.

SoftBank-backed Unacademy and Tiger Global-backed Vedantu.

While Unacademy has reduced its monthly burn to Rs 50-60 crore from over Rs 200 crore due to the efficiencies on the digital marketing front, Vedantu has cut its monthly burn to Rs 15-18 crore from over Rs 65 crore last year, Moneycontrol had reported.

Unacademy has also halved its employee strength to 3,150 since April this year, while Vedantu has laid off over 700 employees.

Unacademy, however, has been spending aggressively in the offline coaching space. Moneycontrol had reported on how the edtech unicorn had spent Rs 100 crore on hiring 30 educators for its first offline tuition centre in Kota. The company is now eyeing profitability by January 2023.

Blume Ventures-backed study abroad platform Leverage Edu has also brought down its CAC to Rs 90,000 per student from over Rs 2 lakh over the past few months, a source aware of the matter told Moneycontrol. The company was able to optimise its digital marketing costs that helped cut its CAC, the source said.

Questions sent to LeverageEdu's founder Akshay Chaturvedi on the evening of November 13 did not receive a response. The copy will be updated with his comments.

Poor lifetime value another factor

“If you look at the edtech space, the lifetime value (lifetime value is the total revenue a business expects from a customer during the lifetime of a business relationship) and the cost of customer acquisition was nuts. Since people were hyper-funded, everyone was trying to sell free trials. You gave a free trial, but who is paying for that and what is the conversion rate?” Artha Ventures managing partner Anirudh Damani, who has invested in two early-stage edtech startups, said.

“Look at the ticket sizes. The course fee is Rs 18,000 and your CAC is Rs 80,000. By the time that person takes the sixth course, you'll make money. Considering each of these courses lasts for about 6-8 months, we are looking at profitability only in the 48th month,” Damani added.

Upskilling space bucks the trend

While things look gloomy for the K-12 (kindergarten to class 12) sector, the higher education space seems to be faring better.

Mayank Kumar, managing director and co-founder of upGrad, had said at a Moneycontrol Masterclass in July that the higher education and upskilling space is counter-cyclical as, during times of job losses and recessionary fears, learners tend to upskill themselves.

Kumar seems to have a point as companies like upGrad, Scaler Academy, Eruditus and Masai School seem to have been less affected amid this slowdown.

Eruditus expects its FY23 (2022-23) booking revenue to double on a year-on-year basis, Damera had said in a media interview in June. Kumar of upGrad had also said that he sees upGrad’s revenue growing 100 percent in FY22 (2021-22) and FY23.

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

upGrad has also been on an acquisition spree. The company has acquired more than 13 companies since the start of 2022. It also doubled its valuation after raising $210 million in what was one of the largest funding rounds raised by Indian edtech companies in 2022.

Tiger Global-backed Scaler had also told Moneycontrol that it will be earmarking $50 million for mergers and acquisitions for FY23.

Scaler’s co-founder Abhimanyu Saxena said in an emailed response that the company’s annual revenue run rate (ARR) topped $110 million as of August 2022. The company also plans to hire 600 employees this year, it said.

The Kunal Shah-backed Masai School, meanwhile, said that it will be adding newer courses and expanding existing categories. Masai School has recently raised $10 million in its Series B funding round led by Omidyar Network India and onboarded Mithali Raj and Bhaichung Bhutia as strategic investors,

“Companies like Scaler and Masai School, which are providing employment to students are slowly changing the landscape of edtech in India. I have been hearing good things about upGrad also,” said Anand Lunia, founding partner, India Quotient, and an early investor in Masai School.

“But I feel it’s not the rich parents or rich kids that edtech companies should reach out to. They can take care of themselves. They must hit the bottom of the pyramid. There’s no Byju’s for the mass market today and that’s a problem that needs to be solved,” Lunia added.

India’s edtech companies had raised a record $5.4 billion in funding in 2021 across 324 deals, according to data by Tracxn. As many as three unicorns or startups, with $1 billion valuation, also got minted, taking the tally of edtech unicorns to five as of December 2021. This year, the funding has almost halved (as of November 14) to $2.8 billion across 148 deals.

With schools, colleges and physical tuition centres reopening, demand for online learning has dropped, compelling edtech companies to scramble for newer revenue streams to match their projections of last year, on the basis of which many had raised large funding rounds.