Funding may dry up for next 12-18 months: Unacademy CEO tells employees

Unacademy may see a funding dry spell for at least next 12-18 months and even last till 24 months and will cut costs to weather the lean period, said the chief executive of the education technology unicorn that recently laid off more than 600 employees.

“This is a test for all of us. We must learn to work under constraints and focus on profitability at all costs. We must survive the winter,” said Unacademy's co-founder and CEO Gaurav Munjal in a letter to the employees.

“Winter is here. We are looking at a time when the funding will dry up for at least 12-18 months.

"Some people are predicting that this might last 24 months. We must adapt,” he said about the company backed by SoftBank and Sequoia.

Last August, Unacademy raised $440 million in a funding round led by Temasek and General Atlantic, Tiger Global, and Softbank Vision Fund pitching in as other participants.

The fundraising took the valuation of Unacademy Group to $3.44 billion.

This is up from a $2 billion valuation in November 2020.

Unacademy Group’s valuation grew almost ten times in 18 months, which analysts say is one of the fastest growth rates by a mid-stage consumer internet startup in India.

Munjal wrote that cost-cutting would be the company’s key focus moving forward.

The firm has reduced its brand marketing budget and will focus on organic growth instead. It said every test prep that it runs must become profitable in the next three months.

Unacademy centres should be profitable in FY23.

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

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

Unacademy saw its loss widen by 494 per cent for the March ending 2021.

It clocked a loss of Rs 1,537.4 crore in FY21 in comparison to Rs 258.6 crore it posted in FY20.

However, the company saw its total revenue rise by 350 per cent in FY21 in comparison to FY20.

The firm clocked a total income of Rs 464 crore in FY21 as compared to Rs 103 crore it clocked in FY20.

Unacademy’s expenses rose by 349 per cent for FY21.

It posted a total expense worth Rs 2,029.9 crore in FY21 as compared to Rs 452 crore it incurred in FY20.

One of the major reasons behind Unacademy’s rise in expenses is because of the significant rise in their employee benefit expense.

The startup posted Rs 748.4 crore in employee benefit expenses in FY21 as against Rs 119.7 crore it clocked in FY20.

Falling valuations, slowing funding rounds and faltering investor sentiment have prompted many Indian start-ups to lay off employees in a bid to conserve cash.

Unacademy, recently laid off about 600 employees, or about 10 per cent of its workforce, including full-time employees, contractual workers and educators. Back in March, Unacademy had laid off over 100 employees from its PrepLadder team as part of a process of “restructuring” the organisation.

Cars24, a leading e-commerce platform for pre-owned vehicles, has laid off over 600 staff.

Another edtech unicorn Vedantu laid off 424 employees — about 7 per cent of the company’s workforce.

The layoff took place days after the company fired 200 of its contractual and full-time employees.

Over 800 employees of WhiteHat Jr resigned from the Byju’s-owned edtech start-up in the last two months after being asked to work from office.

And in February, edtech startup Lido Learning shut down operations.

Munjal’s letter to the employees comes at a time, when top investors such as Sequoia and SoftBank have raised concerns about profitability and may make lesser investments.

Sequoia is one of the most active investors in India and has backed top unicorns such as Byju’s, Oyo, Ola, Zomato, Meesho, Car24, Unacademy, BlackBuck, Pine Labs, Freshworks and Razorpay.

Sequoia Capital has told the founders and CEOs of its companies that the era of being rewarded for hypergrowth at any cost is quickly coming to an end with investors shifting focus on companies that can demonstrate current profitability.

“With the macro uncertainty around inflation, interest rates, and war, investors are looking for companies that can produce near-term certainty,” said Sequoia Capital, an early investor in Apple, Google, Oracle and WhatsApp, in a 52-page presentation to its founders.

“Capital is becoming more expensive while the macro is becoming less certain, leading to investors de-prioritizing and paying up less for growth.”

Sequoia said the Nasdaq is down 28 per cent and Morgan Stanley’s unprofitable tech index is down 64 per cent.

“With the cost of capital (both debt and equity) rising, the market is signalling a strong preference for companies who can generate cash today.”

It said companies who move the quickest have the most runway and are most likely to avoid the death spiral.

“Do the cut exercise (projects, R&D, marketing, other expenses). It doesn’t mean you have to pull the trigger, but that you are ready to do it in the next 30 days if needed.”