Jodhpur-based entrepreneur Nirmal Gehlot, CEO of edtech app Utkarsh Classes, is a rare breed of tech founder. His startup has survived multiple inflationary periods since the early 2000s, without layoffs or expense cutbacks. After founding an offline coaching centre for all-India competitive exams back in 2003, Gehlot took the plunge into the tech industry with an online learning module launched using a mobile app in 2018. This was also a time when venture capitalists (VCs), angel investors, and other institutional equity investors began doubling down on the consumer Internet space in India across segments including edtech, food delivery, fintech, health tech and many others.
But Gehlot stayed out of the investment frenzy and decided to bootstrap his new edtech app. The app now has more than 9 million downloads on both Android and iOS, along with a monthly active user base of 1.8 million students who spend almost 1.32 hours daily on the app. These are numbers that could have easily attracted VCs and other angel investments, but Gehlot remains self-funded to this day.
“After our online kickstart in 2018, Utkarsh Classes now runs 90 digital classrooms in Jodhpur, Jaipur, Delhi, and Prayagraj. Utkarsh Classes is run by more than 170 educators and nearly 1,100 other employees, who are paid salary from our own cash flow,” said Gehlot told FE.
In FY21, Utkarsh Classes reported revenue of Rs 129 crore with an Ebitda of Rs 51 crore. Gehlot said the company has not had to lay off staff or cut back expenses through its bootstrapped journey since 2003.
Even as hyper-funded tech start-ups backed by venture capitalists have been struggling to keep business afloat with multiple rounds of firing and cost-cutting, Utkarsh Classes is on a hiring spree.
In fact, at least half a dozen bootstrapped tech start-ups that FE spoke to said they have historically been able to weather economic downturns and inflationary periods without pay cuts or downsizing. Most of the founders indicate that freedom of decision-making and the ability to reallocate funds and resources quickly without worrying about investor-designated targets have helped them, particularly during economic slowdowns.
Bengaluru and Singapore-based edtech start-up Great Learning, which offers online degrees for freshers and experienced professionals, also remained largely bootstrapped through its operational years. The startup was recently acquired by edtech behemoth Byju’s in a $600-million cash and stock deal. It was initially set up in 2013 by co-founders Arjun Nair, Hari Nair, and Mohan Lakhamraju with a $100,000 seed investment.
Lakhamraju told FE that typically VCs expect at least 30% IRR on their investments to meet the return target, and a business has to chase large growth multiples, which he believed was unsustainable for his edtech startup. “We felt that the learning objectives that we have may clash with the investor objectives, in which case, there would be pressure on us to compromise on our learning objectives. This is why in the early stages, we did not believe that our business model could subscribe to the venture capital model, which would have rendered our relationship with students a purely transactional one,” Lakhamraju said.
In addition, Great Learning did not have a large board of investors, which is the case with VC-funded startups. Commonly, in VC or PE-funded startups, investors usually negotiate for a board seat, which may end up affecting decision-making — and in some cases also give more power to investors over the management.
“Being bootstrapped gives us the freedom to focus on the long term and not run after quarterly results. We are only answerable to our customers, partners and employees, and not external stakeholders,” said Praval Singh, VP marketing and customer experience, Zoho.
Founded in 1996 by Sridhar Vembu, Zoho is one of the many SaaS startups that endured multiple economic crises and bear markers in 2003 and 2009. The bootstrapped firm reported a profit of Rs 1,918 crore in FY21, compared to Rs 800.8 crore in FY20, according to its RoC filings. The startup re-invests a chunk of these profits in product expansion and hiring. On July 18, Zoho announced that it is looking to hire at least 2,000 employees across engineering, technology and product development as it plans to expand in India and other foreign geographies.
Another Delhi-based SaaS startup, Wingify, which helps businesses increase online sales, has also stayed away from VC funding throughout its operational years since 2010. CEO Sparsh Gupta said the company has never instituted a pay cut or downsizing to save costs.
“We don’t have a cost-cutting philosophy. We are prudent with our investments and spending. We also carefully analyse the impact of these spends and have pulled back from investments if there is not enough ROI. Since Wingify’s inception, we have had no layoffs or expenditure cuts to save costs,” Gupta said.
Wingify was set up in 2010 with frugal seed money. Gupta told FE that in 2010, the startup bought a website domain worth Rs 1,000 along with a $5 website theme, and subscribed to a $20 per month worth of servers and another $100 in IT and storage space costs. The company has only three members on the board of directors, including the two co-founders and the father of one of the founders. The founders and the leadership team own and drive all business-related decision-making.
“We registered the organisation with minimum administrative charges, and as far as functioning, we were operating from our homes using our laptops, so it needed no further investment. This seemingly negligible investment came from our savings or family. The most significant investment looking back that we made was our time,” Gupta said.
Currently, Wingify has crossed a revenue run rate of $30 million and expects the year to end at a healthy 30% growth over the previous year. However, Gupta and his co-founder, Paras Chopra, are convinced that VC and other equity-based capital is a “blocker” to what they are building, and have turned down multiple offers from institutional investors in the past.
On the other hand, in the VC-funded ecosystem, more than 30 different tech startups in the country have resorted to layoffs or restructuring in 2022 alone, as investors were spooked by tech stock crashes in the US and in India.