More rationalisation at Unacademy as funding winter bruises edtech unicorns 

Sources said the company is also considering hiving off or shutting down more subsidiaries, particularly to protect its cash runway during the ongoing funding winter.

Web first: More rationalisation at Unacademy as funding winter bruises edtech unicorns .
Web first: More rationalisation at Unacademy as funding winter bruises edtech unicorns. 

Edtech startup Unacademy is reportedly preparing to lay off 20% of its overall workforce in its fourth round of rationalization in 12 months, according to three sources who spoke with FE. 

Before the current layoff, SoftBank-backed Unacademy sacked about 10% of its workforce, or around 350 employees, in November 2022, citing unfavourable market conditions and due to the ongoing funding slowdown for tech startups. After this round of layoffs, at least 1,200 of its people stand affected, including the 150 employees in June, and the 600 workers the company fired in April.

“The job cuts are expected to take place across the test-prep division and the recently de-merged CodeChef company’s employees as well,” said one of the sources quoted above.

Codechef, a platform for competitive programming used by both students and professional programmers, on Wednesday said it has demerged from the Unacademy Group and will operate as a standalone enterprise, with its present team leading the firm.

Sources said the company is also considering hiving off or shutting down more subsidiaries, particularly to protect its cash runway during the ongoing funding winter. However, sources have also indicated that only certain verticals, such as core K-12 NEET, UPSC, and IIT-JEE, are currently making profits for Unacademy. 

“K-12 and test prep businesses are the most profitable units for the firms, and they internally have classified these units into three categories named Busines Unit-1, Busines Unit-2, and Businss Unit-3 with each having a business head. Each unit caters to individual exam coaching for UPSC, IIIT-JEE, NEET, and other govt exams categories,” said one of the sources close to the company. 

The news of the impending job cuts has caused concern among employees and stakeholders alike. Many are worried about the impact that such a large layoff will have on the company’s overall operations and its ability to raise the next round of funding during a funding freeze. 

Unacademy did not respond to calls and emails seeking responses until press time. However, an internal email sent by Unacademy CEO and co-founder Gaurav Munjal said that only 12% of the total employees totaling to 380 jobs were affected in the current layoffs. FE has reviewed a copy of the email.

“I never thought I would need to send out another message like this, but here I am. We have taken every step in the right direction to make our core business profitable, yet it’s not enough…Unfortunately, this has led me to take another difficult decision. We will be reducing the size of our team by 12% to ensure that we can meet the goals we are chasing in the current realities we face. I did not anticipate I would have to do this again, and I’m very sorry…Today, the global economy is enduring a recession, funding is scarce and running a profitable business is key. We have to adapt to these changes, build and operate in a much leaner manner so we can truly create value for our users and shareholders,” Munjal said in his email to employees. 

A venture capital investor with investments in edtech unicorns speaking on condition of anonymity said that although there is still an appetite among equity investors (VCs and PEs) to invest in edtech players in India, the investments would be reserved only for profitable players 

“At least for the next 1-1.15 years, I don’t see the markets being friends to edtech or any consumer Intern firms. What happened with 2021 was that a couple of VCs gave outlandish valuations to edtech firms especially, and now those companies are struggling to grow into those tall valuations. Till the time these large edtechs deliver on it, I don’t think these companies should be raising any more capital. They used be using the last funding round to continue to get to EBITDA profitability at least,” the investor added. 

The job cuts at Unacademy come at a time when the Indian edtech industry is booming, driven in part by the Covid-19 pandemic and the shift to online learning. The sector has seen a surge in investment, with many startups raising large amounts of funding to expand their operations. However, the funding winter has hit many startups hard, particularly those that have not been able to demonstrate profitability or a clear path to profitability. Unacademy’s decision to lay off employees and rationalize its operations is seen by some as a necessary step to weather the current economic climate.

Nevertheless, Unacademy is one of the many edtech unicorns to be laying off staff in the last few months due to a funding crunch. In the recent past, multiple edtech peers like Vedantu, Invact Metaversity and FrontRow have sacked several employees to reduce their cash burn, while Lido Learning and Udayy each fired all their 100-plus staff and shut shop because their entirely online teaching models didn’t yield desired results.

These purely online edtech firms operate in a hyper-competitive market and have seen their growth rate drop in recent times. The reopening of schools and colleges and a slowdown in funding from venture capital (VC) firms have both weighed on the industry’s performance.

Unacademy — with a valuation of about $3.4 billion — is the country’s second-most valued edtech firm, after Byju’s, which was last valued at around $22 billion. PhysicsWallah (PW) was the latest edtech unicorn, valued at $1.1 billion.

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First published on: 30-03-2023 at 11:36 IST